Buy DCB Bank; target of Rs 245: Motilal Oswal

What happened

Motilal Oswal reported that DCB Bank's profit after tax grew 29% year on year to INR2.36 billion, beating estimates by 7%. Net interest income rose 17% year on year to INR7.0 billion, in line with expectations. The broker reiterated BUY with a target of Rs 245.

Confirmed

Global impact / market context

A higher target price signals the broker expects the share price to rise. Profit growing faster than net interest income suggests other income, such as fees and treasury gains, is supporting results, which can help earnings even when lending spreads narrow.

Analyst inference

The bank's net interest margin, which is the gap between interest earned and paid, narrowed to 3.25% due to foreign currency deposit mobilization. Other income rose 34% year on year amid higher core fees and treasury gains.

Analyst inference

What to watch

1. Net interest margin contracted quarter on quarter to 3.25%, which the broker attributed to the adverse impact of FCNR(B) deposit mobilization, a foreign currency deposit scheme. Confirmed
2. Motilal Oswal fine-tuned its earnings estimates and projects return on assets of 1.02% and return on equity of 14.8% for FY27E, with a target price based on 1.0x FY28E adjusted book value. Proposed
3. Watch whether fee income and treasury gains keep supporting profit if lending spreads stay under pressure, since other income rose 34% year on year and 27% quarter on quarter in the reported period. Analyst inference

Evidence

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