Buy DCB; target of Rs 58: AnandRathi

AnandRathi is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 58 in its April 16, 2013 research report.
 
“DCB Bank’s deposits grew 32 percent yoy, its advances grew 24.6 percent yoy, resulting in 28.7 percent yoy business growth. Despite a fall in the share of CASA (496bps yoy, 156bps qoq) to 27.2 percent, NIM rose 51bps yoy (13bps qoq) to 3.5 percent, led by strong retail advances growth (47 percent yoy, 12 percent qoq). Ahead, we expect the business to register a 23 percent CAGR over FY13-15, led by secured loans in the SME, micro-SME, retail-mortgage and commercial-vehicle segments. Hence, we raise our FY14 NII estimates 4.5 percent and FY15 3.3 percent.”

“Led by modest growth in fees (10 percent yoy), fees-to-earning assets were 1.1 percent. Productivity improved, with core costincome falling 874bps yoy (498bps qoq) to 65.4 percent. While network expansion is likely in CY13, the focus would be on tier-2 to tier-6 cities, where operating costs are low. With higher-than-past business growth, the bank’s operating leverage is likely to further improve. We estimate cost-to-assets to fall from 3.1 percent in FY12 to 2.7 percent in FY14 and 2.8 percent in FY15. Gross NPA fell 8.5 percent qoq, with net NPA at 0.7 percent of loans, and NPA coverage of 77.1 percent, one of the highest among peers. Over Mar’11-13, gross NPA have registered a 10 percent compounded annual decline, led by cautious lending and an aggressive emphasis on recoveries. The bank is well-capitalized, with sufficient tier-1 capital (12.6 percent) to sustain 23 percent business growth over FY14-15.”
 
“Led by the bank’s improving business growth, better productivity and stable credit costs, we raise our PAT estimates 20.6 percent/6.8 percent in FY14/15, supporting the bank’s robust profitability over FY13-15. Hence, we maintain our Buy rating. At our Mar’14 price target, the stock would trade at a PBV of 1.3x FY14e and 1.1x FY15e. Our target price is based on the two-stage DDM (CoE: 22 percent; beta: 1.6; Rf: 8 percent),” says AnandRathi research report.

Non-Institutions holding more than 90% in Indian cos

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