Accumulate DCB; target Rs 50: SKP Securities

SKP Securities is bullish on Development Credit Bank (DCB) and has recommended accumulate rating on the stock with a target of Rs 50 in its July 19, 2012 research report.

"Development Credit Bank (DCB) delivered impressive Q1FY13 results; with net profit growing 114% YoY (albeit on a lower base) on the back of 23% YoY NII growth, lower provisioning and continued tax savings. Momentum in advances fortified by growing at 29% YoY and registering the highest growth in the past seven quarters. Although Gross NPLs reduced by 22 bps QoQ, Net NPL’s rose by 18 bps QoQ. CASA ratio was a dampener as it declined to 30% from 32% reported in the sequential quarter."

"The bank is experiencing discomfort in growing the existing SME & MSME loan book as the customers are somewhat reluctant in drawing down from their facilities portraying the stress witnessed in the segment. Moreover, slippages were high at Rs. 220 mn o/w Rs. 120 mn belonged to a single large rice processing unit in Gujrat. Although the management does not foresee any systemic risk in the sector, we believe the decline in Gross NPLs and Net NPLs could be slower than anticipated. We expect 3.1% Gross NPLs and 0.4% Net NPLs for FY13E."

"Despite the imposing set of numbers registered by the bank, we rate Accumulate on the stock with a target of Rs. 50 with a PBV target multiple of 1.2x on FY14E BV, yielding 12%. Our rating is reasoned by a) early signs of stress in the SME & MSME book. b) Difficulty in holding on to low cost deposits. c) Plausible compression in NIMs going forward," says SKP Securities research report.

Bodies Corporate holding more than 50% in Indian cos

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