DCB Bank share price falls over 10% on analysts downgrade

DCB Bank share price, after falling 20 per cent in Wednesday’s trade, extended losses on Thursday too to plunge another 10+ per cent in morning trade. (Reuters)

DCB Bank share price, after falling 20 per cent in Wednesday’s trade, extended losses on Thursday too, to plunge another 10+ per cent in the morning trade.

At 10.32 am, DCB Bank share price was trading 11.05 per cent down at Rs 95. The scrip opened at Rs 98.90 and had touched a high and low of Rs 101 and Rs 92.60, respectively in trade so far. Sensex was up 0.78 per cent at 26,989.

With a view to lay the foundation for future endeavour and counter competition from MFIs who have been awarded small bank licences, DCB had announced a shift in its strategy recently from stable growth to aggressive expansion. Consequently, the bank is looking to double its branch count to around 300 in 12 months till December 2016 (existing branch count – 160). Headcount will be increased by around 50 per cent to 5,400-5,800 from existing 3,674.

However, according to market experts, investors were left disappointed by DCB Bank’s aggressive expansion plans. ICICI Securities said, with investment towards increasing scale and scope of reach, it expects the cost-to-income (CI) ratio to increase to 64 per cent in the ongoing financial year and 74 per cent in 2016-17E, post which an improvement may be seen with a decline in CI ratio – with a lag in revenue accretion until new branches achieve breakeven. The brokerage house expects profitability to remain subdued at Rs 160 crore in FY16E and Rs 117 crore in FY17E (earlier estimate Rs 251 crore).

ICICI Securities said, “RoA is expected to remain subdued at 50-60 basis points with RoE remaining below 10 per cent in FY16-17E. Hence, we downgrade the stock to ‘sell’ with a target price of Rs 92 per share (earlier Rs 152).”

Kotak Institutional Equities also called it ‘a very dangerous, unexpected and disappointing shift’ in strategy. The brokerage house downgraded DCB Bank shares to ‘sell’ from ‘buy’ and cut the target price to Rs 100 from Rs 150 earlier.

Motilal Oswal said the sudden shift in strategy is leading to sharp earnings cut and sees ROE falling below 10 per cent till FY17 – it downgraded the stock to ‘sell’ from ‘buy’.

DCB Bank reported a 10 per cent year-on-year fall in July-September net profit on higher provisions.