Multi Bagger - Development Credit Bank

[UAE Exchange Etrade]

NSE ID : DCB

CMP: Rs.47/-

Development Credit Bank (DCB) reported good results yet again; driven by strong growth in advances leading to increase in NII, cost efficiency leading to an improvement in cost to income ratio and continuous efforts of the bank to improve profitability. PAT increased 72.5% YoY and 21.6% QoQ to Rs 26.9 cr. The bank is on the right track in terms of most of the performance parameters. The bank has been reporting profit for ten consecutive quarters driven by NII, fee income, cost efficiency and controlled credit cost (expected range 0.5% for FY13E). We believe that the bank will embark on expansion plans over the next 2-3 years and gear itself for next innings. We expect the bank to report 52.9% CAGR in PAT over FY12-FY14E leading to RoE of 12.5% and RoA of 1.1% for FY14E. At CMP, the stock is trading at 1.29x and 1.14x FY13E and FY14E Adj BVPS and 12.21x and 9.23x FY13E and FY14E EPS respectively which we believe is attractive and therefore we continue to maintain our BUY rating on the stock. Our target price for the stock is Rs 64 based on P/ABV multiple of 1.5x on its FY14E adjusted book value of Rs.42.6 per share.

 

Net Interest Margin (NIM) stood at 3.38% in Q3FY13 vs 3.24% in Q2FY13 and 3.37% in Q3FY12 led by robust loan growth, 4 bps increase in yield on advances and fund raising via preferential allotment. Going forward, Management does not expect the current levels of NIM to be sustainable as the bank has to ramp up its priority sector lending.  The cost to income ratio of the bank witnessed an improvement and came down below 70% for the first time in the history of the bank after it turned profitable. The improvement is well within the targeted levels of the Management and we expect this to continue going forward.  DCB reported whopping growth in advances both on QoQ and YoY basis (+38.5% YoY and 5.2% QoQ) at Rs 5,964 cr. Management maintains that continued traction is seen in advances indicating that loan growth will remain considerably strong going forward.  The bank's CASA ratio deteriorated both QoQ and YoY basis and stood at 28.9% in Q3FY13; falling first time below the 30% level. CASA deposits increased by a mere Rs 10 cr as compared to strong growth in deposits leading to the decline in the ratio.  Although the asset quality of the bank showed some improvement with Gross NPA declining by 8.8% YoY on absolute basis but deteriorated by 3.5% QoQ basis. Gross NPA ratio and Net NPA ratio were at 3.8% and 0.7% respectively in Q3FY13.

 

The bank is on the right track in terms of most of the performance parameters. The bank has been reporting profit for ten consecutive quarters driven by NII, fee income, cost efficiency and controlled credit cost (expected range 0.5% for FY13E). We believe that the bank will embark on expansion plans over the next 2-3 years and gear itself for next innings. We expect the bank to report 52.9% CAGR in PAT over FY12-FY14E leading to RoE of 12.5% and RoA of 1.1% for FY14E. At CMP, the stock is trading at 1.29x and 1.14x FY13E and FY14E Adj BVPS and 12.21x and 9.23x FY13E and FY14E EPS respectively which we believe is attractive and therefore we continue to maintain our BUY rating on the stock. Our target price for the stock is Rs 64 based on P/ABV multiple of 1.5x on its FY14E adjusted book value of Rs.42.6 per share.