CRISIL maintains fair value of Rs 61 to DCB

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CRISIL maintains fair value of Rs 61 to DCB

CRISIL Research has come out with its report on Development Credit Bank (DCB). The research firm has maintained the fundamental grade of 2/5 to the company in its March 20, 2012 report.

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CRISIL Research has come out with its report on Development Credit Bank (DCB). The research firm has maintained the fundamental grade of 2/5 to the company in its March 20, 2012 report.

Development Credit Bank Ltd (DCB Bank) has recently done a QIP of Rs 940 mn at Rs 47.84 per share as well as got an approval from its Board of Directors to issue preferential allotment to Wolfensohn Capital Partners, Tano Mauritius India and TVS Shriram of Rs 987 mn at Rs ~47.84 per share resulting in total equity infusion of Rs 1.9 bn. CRISIL Research views the development as positive as we believe that the capital injection will not only strengthen the bank's balance sheet but also help the bank to move in line with the RBI's guideline of bringing down the promoter's stake to 10% by FY14. We reiterate our fundamental grading of '2/5' on DCB Bank, indicating that its fundamentals are moderate relative to other listed securities in India.

DCB Bank's board approves preferential allotment of shares to Wolfensohn Capital Partners, Tano Mauritius India and TVS Shriram
DCB Bank's Board of Directors, on March 14, approved issue and preferential allotment of new shares to Wolfensohn Capital Partners, Tano Mauritius India and TVS Shriram. Accordingly, the bank will issue ~20.6 mn new shares at a price of ~Rs 47.8, aggregating to Rs 988 mn. The new capital is expected to flow in by end of March 2012. The management plans to use the new capital (QIP and preferential allotment) for branch expansions as well as augmenting loan book; however, we expect the bank will continue lending cautiously.

Moving in line with RBI guideline to bring down promoter's stake
RBI had issued a guideline to DCB Bank to bring down its promoter (Aga Khan Fund) stake to 10% by FY14. Post the recent QIP, the promoter stake has reduced to 21% from 23.1% as of December 2011. Further, post the preferential allotment, we expect the promoter stake to decline to 19.2%.

Balance sheet to strengthen with CRAR of above 15.4% in FY13
On account of the QIP infusion of Rs 940 mn and preferential allotment of Rs 987 mn expected in FY12, we believe the capital to risk weighted asset ratio (CRAR) will enhance to 16.1% in FY12 from 13.3% in FY11. We expect the core capital - tier I capital - to increase to 14.2% in FY12 from 11.1% in FY11. Considering the strengthening of the bank's balance sheet, we have raised our loan book growth estimates by 60 bps to 18.2% in FY13 and 170 bps to 23.0% in FY14. We expect the operating expenses to increase due to branch expansion and addition of staff to grow the loan book.

Expect FY12 ROE estimate to decline marginally because of dilution
Our FY12 ROE estimate is expected to decline by ~120 bps despite improvement in PAT because of the dilutive impact of the newly issued shares.

Valuations - the current market price has strong upside
We maintain our fair value estimate of Rs 61 per share.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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