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India Equity Research Reports, IPO and Stock News
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BANK PROFILE
Present since 1930, DCB is a modern emerging new generation small private sector bank promoted by AKFED. It is the only co-operative bank in India to have been converted into a private sector commercial bank since 1995. The bank has a distribution network of 82 branches and 140 ATMs as on Q2FY12. ~67% of its branches are concentrated in the western part of India.
INVESTMENT RATIONALE
NII growth to moderate for FY12E but to grow 24% in FY13E
NII growth is likely to moderate for FY12E largely because of lower credit growth. Conversely, NIMs are expected to remain stable at 3.1% for FY12E due to repricing of term deposits. Moreover, further NIMs compression is dubious as steady increase in the base rate exhibits managements perception to leverage growth for margins.
Improving efficiency ratio…..
DCB has a high efficiency ratio as compared to its peers like CUBK and LVB but better than DHLBK. High cost to income ratio is largely attributable to its size and its base theme of being a retail centric bank.
DCB plans to add 12 and 15 branches in FY12E and FY13E respectively. Usually efficiency ratio of a bank tends to increase under substantial branch expansion phase.
Considering the fact that DCB plans to add nominal number of branches. We expect the efficiency ratio of the bank to decrease to 61% in FY13E from 71% in FY11.
Improving asset quality to lower credit costs
We expect reduction in fresh slippages, with increasing focus towards secured lending and stern lending norms.
We expect credit costs to come down on the back of enhanced asset quality and rigorous management efforts towards recoveries. Credit costs are expected to be at 1.1 bps and 1.0 bps for FY12E and FY13E respectively, thus, adding to profitability. NNPAs are expected to slide to 0.8% and 0.7% in FY12E and FY13E respectively.
VALUATION
We initiate coverage on DCB with a Buy rating and a target price of Rs.51 per share yielding a potential upside of 39% (15 months). We valued DCB using two stage dividend discount model (Rf: 8.5%; Beta: 1.3; CoE: 15.7%). DCB currently trades at P/BV multiple of 1.1x and 1.0x for FY12E and FY13E respectively. Our target price is based on a target multiple of 1.4x on FY13E book value (BV) of Rs. 36 per share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BANK PROFILE
Present since 1930, DCB is a modern emerging new generation small private sector bank promoted by AKFED. It is the only co-operative bank in India to have been converted into a private sector commercial bank since 1995. The bank has a distribution network of 82 branches and 140 ATMs as on Q2FY12. ~67% of its branches are concentrated in the western part of India.
INVESTMENT RATIONALE
NII growth to moderate for FY12E but to grow 24% in FY13E
NII growth is likely to moderate for FY12E largely because of lower credit growth. Conversely, NIMs are expected to remain stable at 3.1% for FY12E due to repricing of term deposits. Moreover, further NIMs compression is dubious as steady increase in the base rate exhibits managements perception to leverage growth for margins.
Improving efficiency ratio…..
DCB has a high efficiency ratio as compared to its peers like CUBK and LVB but better than DHLBK. High cost to income ratio is largely attributable to its size and its base theme of being a retail centric bank.
DCB plans to add 12 and 15 branches in FY12E and FY13E respectively. Usually efficiency ratio of a bank tends to increase under substantial branch expansion phase.
Considering the fact that DCB plans to add nominal number of branches. We expect the efficiency ratio of the bank to decrease to 61% in FY13E from 71% in FY11.
Improving asset quality to lower credit costs
We expect reduction in fresh slippages, with increasing focus towards secured lending and stern lending norms.
We expect credit costs to come down on the back of enhanced asset quality and rigorous management efforts towards recoveries. Credit costs are expected to be at 1.1 bps and 1.0 bps for FY12E and FY13E respectively, thus, adding to profitability. NNPAs are expected to slide to 0.8% and 0.7% in FY12E and FY13E respectively.
VALUATION
We initiate coverage on DCB with a Buy rating and a target price of Rs.51 per share yielding a potential upside of 39% (15 months). We valued DCB using two stage dividend discount model (Rf: 8.5%; Beta: 1.3; CoE: 15.7%). DCB currently trades at P/BV multiple of 1.1x and 1.0x for FY12E and FY13E respectively. Our target price is based on a target multiple of 1.4x on FY13E book value (BV) of Rs. 36 per share.
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