Buy DCB; target of Rs 65: Nirmal Bang

“Development Credit Bank (DCB)’s performance for Q2FY12 was broadly in line with our estimates. DCB reported a net profit of Rs.13.2 crs in Q2FY12 resulting in a growth of 177.6% on a YoY basis and a QoQ increase of 51.0%. The bank’s asset quality has improved and the bank reported overall decline in its gross and net NPAs. The bank's CASA deposits stood at 33.2% in Q2FY12, down from 33.3% in Q1FY12 and 34.6% in Q2FY11.”

“Net Interest Income increased by 27.4% on a YoY basis and 13.9% on a sequential basis in Q2FY12 to Rs 59 crs resulting from the increase in base rate. Net Interest Margin (NIM) of the bank improved sequentially to 3.41% in Q2FY12 from 3.1% in Q1FY12. Non Interest Income of the bank declined 14.0% YoY and 1.3% on QoQ basis. The main reason was decline in forex income and flattish commission income. The share of non interest income as % of total income stood at 28.1% in Q2FY12. As the bank continued to invest in new frontline staff the bank’s employee expenses increased 26.1% YoY and 3.7% QoQ in line with expectation. Despite that the cost to income ratio declined from 78.1% in Q1FY12 to 74.6% in Q2FY12. DCB’s loan book grew by 12.4% YoY and 1.9% QoQ in Q2FY12 at Rs 4,315 crs. On deposit front deposits grew at 13.9% on YoY and 4.7% on QoQ basis. Credit to deposit ratio stood at 69%. Management is targeting a credit growth of 16- 17% for FY12E.”

“At the current price of Rs. 43, DCB is trading at a PE of 16.29x of FY12E EPS & 11.05x of FY13E EPS and at P/ABV of 1.32x and 1.2x of FY12E & FY13E respectively. We recommend BUY on the stock with a target price of Rs 65,” says Nirmal Bang research report.    

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