Subscribe to Development Credit Bank IPO: Pioneer

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Development Credit Bank, DCB, one of India's private sector bank promoted by the Switzerland-based Aga Khan Fund for Economic Development, AKFED, headquartered in Mumbai, is open for subscription with an initial public issue of 7,15,00,000 equity shares of Rs 10 each. The price is to be determined through a 100% book build process. The issue will close on October 6, 2006.

It has fixed the price band for its initial public offering, IPO of equity shares of Rs 10 each between Rs 22 and Rs 26 per share.

The book running lead managers to the issue are JM Morgan Stanley Private Limited and Enam Financial Consultants Private Limited. Intime Spectrum Registry Limited has been appointed as the registrar to the issue.

The Pioneer Intermediaries report on DCB IPO:

Investment highlights

• DCB plans to raise ~Rs 180 million, by offering 71.5 million shares (F.V. Rs 10 each) in a price band of Rs 22-26/share. Of these, 2.5 million shares are reserved for employees, while the remaining 69 million shares would be offered to public.
• Out of 69 million shares on offer, 35% (24.2 million shares) will be offered in the retail category, while the balance 65% would be offered in the non-retail category.
• The IPO proceeds are proposed to be utilised for augmenting its capital base to meet future capital adequacy requirements. This would be relevant in view of its overall growth strategy.

Current business

• DCB currently has three main business lines - consumer banking, commercial banking and treasury operations. Consumer banking consists of deposits, loans, insurance and investment products. It accounted for 36% of total advances, 55% of total deposits, 46% of interest income on advances and 49% of non-interest income of the bank as at the end of Q1FY07.
• Commercial banking business is classified into business banking group, BBG, which primarily caters to small and medium enterprises with a turnover of < Rs 1 billion and corporate banking group, CBG, which focuses on corporates with > of Rs 1 billion but < Rs 5 billion. It consists of deposits, loans, trade finance and cash management services.
• Treasury operations span domestic debt, money market and foreign exchange segment. It largely consists of products like interest rate swaps, currency swaps, G-Sec and various other derivative products.
• However, the bank has a legacy of non-performing assets. It has provided Rs 1.5 billion over the last 3 years and Rs 29.5 million in Q1FY07 for NPA's. Currently, net NPA stands at 4.05% of net advances at the end of Q1FY07. The deposit and assets base are currently around Rs 31.2 billion and 18.6 billion. They have been deliberately reduced in size in the last fiscal, so as to maintain the CAR above regulatory norm of 9% (currently standing at 9.10%).
• DCB's networth as on Mar'06 is Rs 1.3 billion and post issue, P/BV would be 0.99x-1.16x, depending on the allotment price. Though the same is not cheap as compared to its peers, the commitment of promoters, pedigree of the new set of investors and the goodwill it has amongst its customers, should enable it to post strong growth and facilitate decent returns to investors. Hence, we recommend a 'Subscribe' to the issue.