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Results broadly in line with expectations
Development Credit Bank (DCB)’s performance for Q3FY12 was broadly in line with estimates. DCB reported a net profit of Rs.17.2 crs in Q4FY12 resulting in a growth of 51.4% on YoY basis and QoQ increase of 10.2%. For FY12 net profit stood at Rs 55.1 crs (+157.6% YoY increase)
NIM’s declined sequentially as expected
Net Interest Margin (NIM) of the bank stood at 3.12% as compared to 3.37% in Q3FY12. Management mentioned that some pressure on NIMs is visible in the near term as a lot of term deposits will get re-priced upwards. Although the Management expects that NIMs will be lower by 15-20 bps in the next 2 quarters, it has indicated that for FY13E NIMs will be broadly in the range of 3-3.1%. We expect NIMs to be at 3.1% for FY13E.
Non-interest income continues to show improvement
Non Interest Income increased sequentially by 14.2% to Rs 29.9 crs. The bank’s core fee income increased 46.4% YoY and 20.3% QoQ to Rs 24.3 crs during the quarter. The share of non interest income as % of total income stood at 34.4% in Q4FY12. Management expects the momentum in fee income to continue going forward.
Decline in cost‐to‐income ratio
The cost to income ratio of the bank stood at 72.6% as compared to 73.8% in Q3FY12 and 72.3% in Q4FY12. Management expects to grow the cost at 50% lower than the growth in income in order to bring operational efficiency. We expect cost to income ratio to come down to 66.9% in FY13E.
Significant improvement in asset quality
The asset quality of the bank showed a significant improvement with Gross NPA in absolute terms declining by 14.7% YoY and 5.7% QoQ. Gross NPA ratio and Net NPA ratio were at 4.4% and 0.57% respectively in Q4FY12. Fresh slippages during the quarter stood at Rs 5 crs. We expect the bank’s Gross NPAs to come down to 3.83% in FY13E and Net NPAs to be at 0.56% in FY13E.
Loan book shows surge in growth
DCB reported a surge in growth both on QoQ and YoY basis (+ 23.7% YoY and 22.7% QoQ) at Rs 5,284 crs. This was mainly due to increase in the priority sector lending which was further backed by growth in SME/Micro SME and mortgage book. Management is targeting a credit growth of 22%-23% for FY13E. Consequently we have factored in 20% growth in advances in FY13E.
Valuation & Recommendation
At the current price of Rs. 50, DCB is trading at a PE of 13.92x of FY13E EPS &
at P/ABV of 1.30x of FY13E. We recommend BUY on the stock with a target price of Rs 65.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results broadly in line with expectations
Development Credit Bank (DCB)’s performance for Q3FY12 was broadly in line with estimates. DCB reported a net profit of Rs.17.2 crs in Q4FY12 resulting in a growth of 51.4% on YoY basis and QoQ increase of 10.2%. For FY12 net profit stood at Rs 55.1 crs (+157.6% YoY increase)
NIM’s declined sequentially as expected
Net Interest Margin (NIM) of the bank stood at 3.12% as compared to 3.37% in Q3FY12. Management mentioned that some pressure on NIMs is visible in the near term as a lot of term deposits will get re-priced upwards. Although the Management expects that NIMs will be lower by 15-20 bps in the next 2 quarters, it has indicated that for FY13E NIMs will be broadly in the range of 3-3.1%. We expect NIMs to be at 3.1% for FY13E.
Non-interest income continues to show improvement
Non Interest Income increased sequentially by 14.2% to Rs 29.9 crs. The bank’s core fee income increased 46.4% YoY and 20.3% QoQ to Rs 24.3 crs during the quarter. The share of non interest income as % of total income stood at 34.4% in Q4FY12. Management expects the momentum in fee income to continue going forward.
Decline in cost‐to‐income ratio
The cost to income ratio of the bank stood at 72.6% as compared to 73.8% in Q3FY12 and 72.3% in Q4FY12. Management expects to grow the cost at 50% lower than the growth in income in order to bring operational efficiency. We expect cost to income ratio to come down to 66.9% in FY13E.
Significant improvement in asset quality
The asset quality of the bank showed a significant improvement with Gross NPA in absolute terms declining by 14.7% YoY and 5.7% QoQ. Gross NPA ratio and Net NPA ratio were at 4.4% and 0.57% respectively in Q4FY12. Fresh slippages during the quarter stood at Rs 5 crs. We expect the bank’s Gross NPAs to come down to 3.83% in FY13E and Net NPAs to be at 0.56% in FY13E.
Loan book shows surge in growth
DCB reported a surge in growth both on QoQ and YoY basis (+ 23.7% YoY and 22.7% QoQ) at Rs 5,284 crs. This was mainly due to increase in the priority sector lending which was further backed by growth in SME/Micro SME and mortgage book. Management is targeting a credit growth of 22%-23% for FY13E. Consequently we have factored in 20% growth in advances in FY13E.
Valuation & Recommendation
At the current price of Rs. 50, DCB is trading at a PE of 13.92x of FY13E EPS &
at P/ABV of 1.30x of FY13E. We recommend BUY on the stock with a target price of Rs 65.
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