CRISIL assigns valuation grade of 5/5 to DCB

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CRISIL assigns valuation grade of 5/5 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 January 12, 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 January 12, 2012 report.

Development Credit Bank Ltd's (DCB's) Q3FY12 earnings were above CRISIL Research's expectations driven by lower provisions vs. our expectations. Lower provision has to be seen in conjunction with advance growth, which has remained muted over past one year - this is a cause for concern. Non-interest income growth was strong in line with our estimates. Advances were flat q-o-q at Rs 43 bn and deposits fell 1% q-o-q to Rs 62 bn. Following higher-thanexpected Q3FY12 results, we may revise our earnings estimates upwards for FY12 post management interaction. Further, we will review our capitalisation plans factored in FY12. We maintain the fundamental grade of 2/5.

Q3FY12 result analysis
• DCB's Q3FY12 net interest income was almost flat q-o-q (up 21% y-o-y) to Rs 597 mn primarily on account of the flat loan book and flat NIMs of 3.37%. NIMs remained stable on rising cost of funds despite yield repricing. Driven by non-interest income growth (led by core fee-income), the total income grew 4.5% q-o-q and 14.1% y-o-y to Rs 859 mn.

• Operational costs grew 3.3% q-o-q (up 16.0% y-o-y) to Rs 634 bn led by increase in non-staff costs (up 6.3% q-o-q and 15.9% y-o-y). However, cost to income marginally declined to 74% in Q3FY12 from 75% in Q2FY12 on account of growth in total income.

• Given flat advance book q-o-q (up 9% y-o-y), the bank has been able to report lower provisions and contingencies, which were down 8.9% q-o-q (down 26.7% q-o-q). Despite the challenging environment, the asset quality remained healthy viz. gross NPAs of 5.7% and net NPAs of 1.0%.

• Profit after tax grew 17.4% q-o-q (up 91.5% y-o-y) to Rs 156 mn led by non-interest income growth and lower provisions. EPS for Q3FY12 was Rs 0.78 as against Rs 0.67 in Q2FY12.

• Total deposits fell 1% q-o-q (up 10% y-o-y) to Rs 62 bn led by 1.5% q-o-q growth in retail deposits (CASA and retail term deposits), which contributed ~83% to total deposits. The bank's CASA ratio was almost flat at 33.1%.

Key developments
Recently, DCB lowered its credit growth target for FY12 from 18% to 16%. Our estimates already factor in 16.1% credit growth in FY12. DCB hiked the interest on NRE deposits from 3.82% to 10%. We will analyse the impact of NRE deposit hike on NIMs after we get clarity from the management regarding the percentage of NRE deposits to total deposits.

Valuations: Current market price has strong upside
As we may revise our earnings estimates and review capitalisation plans, our fair value of Rs 61 per share based on the justified price-to-book ratio (P/B) may be revised. The valuation grade is 5/5. Our implied P/B works out to 1.7x on FY13E adjusted book value.

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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