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Development Credit Bank: Reaping benefits from strategic focus…
DCB remains our top sectoral pick due to continuous improvement in its
operating metrics. The business mix posted a strong 26% YoY (3% QoQ)
jump to | 9606 crore, NII grew 51% YoY to | 49.3 crore (I-direct estimate:
| 49.5 crore) while provisions were scaled down to | 9.4 crore from
historic highs of | 14-24 crore this quarter. This led to a stellar 70% QoQ
jump in profit to | 8.2 crore in Q3FY11. NIM was maintained sequentially
at 3.13%. However, we expect a 25-30 bps decline next quarter due to
rising cost of funds across the industry. The asset quality improved
sequentially (NNPA ratio improved to 1.3% from 1.9% in Q2FY11). This
indicates a relief from high credit costs crushing profits. We expect a 27%
CAGR in NII over FY10-13E and 96% CAGR in PAT over FY11E-13E.
Selective growth: focus on retail CASA, SME-MSME, mortgages…
Deposits grew 26% YoY to | 5651 crore with retail deposits maintaining
their share at 79%. CASA declined QoQ from 34.6% to 33.1% in Q3FY11.
However, retail CASA, which constitutes ~95% of total CASA, improved
marginally by 1.4% to | 1776 crore. The credit offtake grew in tandem with
deposits at 26% YoY to | 3956 crore. DCB is focusing on expanding in
chosen areas of SME-MSME and mortgages with a targeted share of 40%
(current: 21%) and 25-30% (current: 26%) in the total pie, respectively.
Considering the rising lending rates and tight liquidity conditions prevalent
in the system, the bank has guided business growth of 20-21% for FY11E.
We estimate the business mix will grow by a CAGR of 23% over FY10-13E.
Consistent improvement in asset quality…
Legacy unsecured loans have declined from | 208 crore in Q2FY11 to ~|
150 crore in the current quarter. GNPA reduced 20% YoY (4% QoQ) to |
297 crore while NNPA declined 62% YoY (28% QoQ) to | 52 crore. The
GNPA ratio declined sequentially from 7.6% to 7.1% and NNPA ratio
contracted from 1.9% to 1.3% ushering in a respite on the credit cost front.
The provision coverage ratio (PCR) is comfortable at 84.7%.
Valuation
The RoA which turned positive last quarter, improved to 0.47% in Q3FY11.
We had initiated coverage on the bank on November 23, 2010 with a target
multiple of 2x FY13E ABV (TP: | 81). We had lowered the multiples for our
coverage universe in our Industry Report dated December 17, 2010 due to
concerns on asset quality and margins industry wide. We continue to value
the bank at 1.8x FY13E ABV and have maintained our target price of | 72.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Development Credit Bank: Reaping benefits from strategic focus…
DCB remains our top sectoral pick due to continuous improvement in its
operating metrics. The business mix posted a strong 26% YoY (3% QoQ)
jump to | 9606 crore, NII grew 51% YoY to | 49.3 crore (I-direct estimate:
| 49.5 crore) while provisions were scaled down to | 9.4 crore from
historic highs of | 14-24 crore this quarter. This led to a stellar 70% QoQ
jump in profit to | 8.2 crore in Q3FY11. NIM was maintained sequentially
at 3.13%. However, we expect a 25-30 bps decline next quarter due to
rising cost of funds across the industry. The asset quality improved
sequentially (NNPA ratio improved to 1.3% from 1.9% in Q2FY11). This
indicates a relief from high credit costs crushing profits. We expect a 27%
CAGR in NII over FY10-13E and 96% CAGR in PAT over FY11E-13E.
Selective growth: focus on retail CASA, SME-MSME, mortgages…
Deposits grew 26% YoY to | 5651 crore with retail deposits maintaining
their share at 79%. CASA declined QoQ from 34.6% to 33.1% in Q3FY11.
However, retail CASA, which constitutes ~95% of total CASA, improved
marginally by 1.4% to | 1776 crore. The credit offtake grew in tandem with
deposits at 26% YoY to | 3956 crore. DCB is focusing on expanding in
chosen areas of SME-MSME and mortgages with a targeted share of 40%
(current: 21%) and 25-30% (current: 26%) in the total pie, respectively.
Considering the rising lending rates and tight liquidity conditions prevalent
in the system, the bank has guided business growth of 20-21% for FY11E.
We estimate the business mix will grow by a CAGR of 23% over FY10-13E.
Consistent improvement in asset quality…
Legacy unsecured loans have declined from | 208 crore in Q2FY11 to ~|
150 crore in the current quarter. GNPA reduced 20% YoY (4% QoQ) to |
297 crore while NNPA declined 62% YoY (28% QoQ) to | 52 crore. The
GNPA ratio declined sequentially from 7.6% to 7.1% and NNPA ratio
contracted from 1.9% to 1.3% ushering in a respite on the credit cost front.
The provision coverage ratio (PCR) is comfortable at 84.7%.
Valuation
The RoA which turned positive last quarter, improved to 0.47% in Q3FY11.
We had initiated coverage on the bank on November 23, 2010 with a target
multiple of 2x FY13E ABV (TP: | 81). We had lowered the multiples for our
coverage universe in our Industry Report dated December 17, 2010 due to
concerns on asset quality and margins industry wide. We continue to value
the bank at 1.8x FY13E ABV and have maintained our target price of | 72.
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