Systematix initiates coverage on DCB Bank with 'Buy' call, sees 40% upside

The brokerage expects the lender's RoA and return on equity (RoE) to improve to 1.0-1.1 per cent and 14.4-15.8 per cent, respectively, over FY27-FY28E, from 0.9 per cent and 11.4 per cent in FY25

Brokerage firm Systematix has initiated coverage on private sector lender DCB Bank with a ‘Buy’ rating, citing improving operational efficiency, strong net interest margin (NIM) visibility, and a strategic focus on secured lending and cross-sell opportunities. 

 

Hitendra Gupta, head of research, and Chetan Sharma, senior research Analyst at Systematix, believe DCB Bank remains well-positioned to achieve its aspirational return on assets (RoA) target, supported by improving NIMs, a strengthening fee income profile, gradual moderation in the operating expense ratio through enhanced operating efficiency, and range-bound credit costs.

 

They expect the lender’s RoA and return on equity (RoE) to improve to 1.0–1.1 per cent and 14.4–15.8 per cent, respectively, over FY27–FY28E, from 0.9 per cent and 11.4 per cent in FY25.

 

 

The analysts have valued the stock at a price-to-book value (PBV) multiple of 1x on FY28E book value of Rs 270, implying a target price of ₹270 and an upside of around 40 per cent from the current market price.

Strong growth and cross-sell potential

In its report, Systematix highlighted that the bank is targeting loan growth of 18–20 per cent, driven primarily by secured segments such as loan against property (LAP), SME lending, and co-lending. It added that a largely underpenetrated customer base—where around 76 per cent of customers hold only one product—offers meaningful cross-sell potential.

 

“Additionally, around 27 per cent of Niyo card users who transact abroad maintain savings balances below ₹1,000, presenting an opportunity to deepen deposit mobilisation. Going forward, NIM expansion will be led by deposit repricing and a favourable shift in asset mix, while the cost-to-assets ratio is expected to remain range-bound at around 2.5 per cent due to sustained investments in technology and manpower, with further RoA improvement driven by a declining cost of deposits,” the analysts wrote in a research note.

 

Systematix further pointed out that among its key investment rationales is the bank’s plan to grow its loan book in the 18–20 per cent range, led by secured segments such as LAP, SME lending, and co-lending. The brokerage reiterated that with nearly 76 per cent of customers having only one product, the scope for cross-sell remains significant. It added that a key driver of NIM going ahead will be the repricing of deposits and changes in the asset mix.

 

It also noted that around 27 per cent of Niyo customers who have used the card abroad keep less than ₹1,000 in their savings accounts, representing an opportunity to garner deposits.

 

“Going forward, the cost-to-asset ratio is expected to remain range-bound between 2.4 per cent and 2.5 per cent due to continued investments in technology and employees. Further improvement in RoA will be driven by a lower cost of deposits. With improving operational efficiency, strong NIM visibility, and a strategic focus on cross-sell and secured lending, DCB is well positioned for sustainable RoA improvement,” said the analysts.

Analysts flags key risks

The analysts, however, cautioned about key risks to the investment thesis. On margins, they said NIM expansion to 3.4–3.5 per cent could be constrained by slower-than-expected deposit repricing, intense competition, or limited pricing power in LAP and SME products.

 

They also flagged risks to fee income and cross-sell execution, noting that non-interest income growth hinges on the successful adoption of cross-sold products. Slower uptake of trade finance, insurance, or digital offerings could limit revenue diversification.

 

On asset quality, the brokerage highlighted that high credit growth of 18–25 per cent increases vulnerability to slippages in SME, agriculture, and LAP segments, particularly under conditions of economic stress. Deposit and liquidity risks were also flagged, as heightened competition for retail deposits or tighter liquidity conditions could push up funding costs and pressure margins.

 

Operating leverage risks remain as well. The analysts noted that the plan to add 25–30 branches annually may not yield the expected productivity gains, potentially leading to higher cost ratios. In addition, regulatory changes or digital disruptions could impact growth, operational efficiency, and customer experience, the brokerage said.  ============================= 

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