Buy DCB; target of Rs 64: Unicon Investment

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Buy DCB; target of Rs 64: Unicon Investment

Unicon Investment is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 64 in its January 16, 2012 research report.

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Unicon Investment is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 64 in its January 16, 2012 research report.

"Development Credit Bank Ltd (DCB) delivered strong quarter, with net profits increasing by 94% to INR 157 mn vs. our estimates of INR 139 mn on YoY basis. This was contributed by net interest income growth of 21% to INR 597 mn YoY (estimates of INR 623 mn). The bank's asset quality has improved with overall decline in its gross and net NPAs. The bank's CASA deposit ratio stood at 33.1% in Q3FY12."

"Net Interest Income increased by 21% on a YoY basis in Q3FY12 to INR 597 mn driven by 29% & 30% yoy growth in advances & investments income respectively. NIMs improved by 24 bps to 3.37% in Q3FY12 on YoY basis; however, on sequential basis it has fallen by 4 bps. Non Interest Income grew by 1% to INR 262 mn, however, on sequential basis it increased 13.4%. This was primarily led by 22% & 12% growth in commission & brokerage income & exchange transaction, respectively. DCB's loan book grew by 9% to INR 43.06 bn in Q3FY12 on YoY basis. Credit to deposit ratio stood at 69.9% and management is targeting a credit growth of 16-17% for FY12E. The deposits grew by 10% to INR 61.91 bn, however, CASA ratio remained at 33.1%. Retail Deposits were at 82.9% of Total Deposits as on Q3FY12 as against 78.9% as on Q3FY11."

"DCB has revamped itself since FY09 and with change in management and business strategy we believe DCB to run on growth trajectory going forward. We believe that with thrust on improving NIMs, CASA ratio, better core operating income and return ratios, DCB would be one of the fastest growing Indian banks over next few years. We expect DCB to control its incremental slippages and maintain NIM in the range of ~3.3% levels by FY13E. At the CMP stock trades at 1.2x its FY13 book value. We expect return ratios to improve from hereon for the bank i.e. RoE to reach to 9.8% in FY13E from 3.5% in FY11. We maintain our Buy rating for target price of INR 64," says Unicon Investment research report.

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To read the full report click on the attachment