Buy DCB; target of Rs 65: Nirmal Bang

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Buy DCB; target of Rs 65: Nirmal Bang

Nirmal Bang is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 65 in its January 13, 2012 research report.

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Nirmal Bang is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 65 in its January 13, 2012 research report.

"Development Credit Bank (DCB)'s performance for Q3FY12 was ahead of estimates. DCB reported a net profit of Rs.15.6 crs in Q3FY12 resulting in a growth of 91.2% on a YoY basis and a QoQ increase of 17.1%. The bank's asset quality has improved and the bank reported overall decline in its gross NPAs. The bank's CASA deposits stood at 33.2% in Q3FY12."

"NIM of the bank stood at 3.37% in Q3FY12 as compared to 3.41% in Q2FY12 and from 3.13% in Q3FY11. However, Management mentioned that some pressure on NIMs is visible in the current quarter and expects NIMs to be in the range of 3.1-3.2% for Q4FY12. Non Interest Income remained flat on a YoY basis but increased sequentially by 13.4% to Rs 26.2 crs. Management expects the momentum in fee income to continue going forward. It is noteworthy to mention that the non interest income has seen an uptick from the current quarter onwards. The cost to income ratio of the bank stood at 73.8% as compared to 74.7% in Q2FY12 and 72.6% in Q3FY12. Management expects to bring down the cost to income ratio to ~60% in next 2 years driven by the expansion in business and cost efficiencies."

"DCB reported a sluggish growth of 8.8% YoY in its loan book, whereas on sequential basis the book declined marginally in Q3FY12 at Rs 4,306 crs. The decline was mainly due to reduction in the banks corporate portfolio which negated the impact of increase in the banks retail portfolio. Management is targeting a credit growth of 14- 16% for FY12E. At the current price of Rs. 41, DCB is trading at a PE of 14.54x of FY12E EPS & 11.78x of FY13E EPS and at P/ABV of 1.40x and 1.18x 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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To read the full report click on the attachment