Company Report | Q2FY12 Result Update

LONG TERM INVESTMENT CALL

13 October 2011
Industry CMP (INR) Target (INR) 52 week High/Low (INR) Market Cap (INR MN) 3M Avg. Daily Volumes P/BV FY12E Shareholding Pattern (%) Banking 43 64 76/37 8149 541600 1.2x Q2FY12 Result Highlights

BUY

Development Credit Bank Ltd (DCB) delivered strong quarter, with net profits increasing by 178% to INR 133 mn (estimates of INR 119 mn) on YoY basis. This was contributed by net interest income growth of 27% to INR 591 mn YoY (estimates of INR 581 mn) driven by 12% yoy growth in advances. Other income declined by 14% YoY to INR 231 mn primarily led by 68% decline in exchange transactions. NIMs improved to 3.41% in Q2FY12 from 3.14% in Q2FY11 after a 140 bps rise in cost of deposits which was more than compensated by 194 bps increase in yield on advances. Also, on sequential basis

Others, 63.32%

Promoters, 23.08%

FII, 11.67%

NIMs increased from 3.10%. The deposits grew by 145 to INR 62.61 bn, however, CASA ratio declined to 33.16% from 34.57% in Q2FY11. However, Retail Deposits (Retail CASA and Retail Term Deposits) continued to show positive movement. Retail Deposits were at 80.8% of Total Deposits as on Q2FY12 as against 78.7% as on Q2FY11. DCBs advances have grown by 12% YoY driven by SME which grew by 28% YoY to INR 163 bn. The growth in retail advances which registers a growth of 41%, was largely driven by 35% growth in commercial vehicles loans. The gross & net NPA in Q2FY12 stood at 5.75% & 0.97% against

Institutions, 1.93%

Stock Performance
100 90 80 70 60 50 40 30 20 Dec Aug Jul Sep Jan Jun Nov May Oct Feb Mar Apr Oct

7.61% & 1.86% in Q2FY11 respectively. Fresh slippages remained under control at INR ~110 mn for the quarter. During the quarter, banks overall provisioning declined by 53% to INR 750 mn & the provision coverage ratio including technical write-off also remained

DCB

NSE Nifty

Performance (%) 1 Month DCB -10.9% NIFTY 3.1%

* Source: Ace, Unicon Research

3 Months -33.5% -7.7%

1 Year -36.9% -16.3%

stable at 87.89%. The banks capital adequacy ratio for Q2FY12 was 13.10% with Tier I capital at 11.23%. Currently bank has 82 branches & has 10 more branch licenses from RBI. Outlook & Valuation DCB has revamped itself since FY09 and with change in management and business strategy we believe DCB to run on growth trajectory going forward. We believe that with thrust on improving NIMs, CASA ratio, better core operating income and return ratios, DCB would be one of the fastest growing Indian banks over next few years. We expect DCB to control its incremental slippages and maintain NIM in the range of ~3.3% levels by FY13E. At the CMP stock trades at 1.2x & 1.1x its FY12E & FY13 book value respectively. We expect return ratios to improve from hereon for the bank i.e. RoE to reach to 9.8% in FY13E from 3.5% in FY11. Thus, we value the bank's business at 1.6x FY13E P/BV, thereby evaluating it at INR 64.

(INR in mn)

Particulars NII Operating Profit PAT

Actual 591 209 133

Estimates 581 214 119

* Source: Ace, Unicon Research

Analyst Shweta Rane | srane@uniconindia.in

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@uniconindia.in

Financials
INR in mn)

Q2 FY12

Q2 FY11

Y-o-Y

Q1 FY12

Q-o-Q

Interest income Interest expense Net Interest Income Other Income Total Operating income Operating expenditure Operating Profit Operating Profit (%) Provisions PBT Tax PAT EPS (INR.) NIMs
Source: Company, Unicon Research

1785 1194 591 231 822 614 209 10.39 75 133 0 133 0.67 3.41

1279 815 464 269 733 525 208 13.45 149 58 11 48 0.24 3.14

39.59 46.56 27.35 -14.01 12.17 16.95 0.60 -306 bps -49.53 127.93 -100.00 178.48 178.31 27bps

1616 1098 519 234 753 588 165 8.93 77 88 0 88 0.44 3.10

10.43 8.81 13.87 -1.34 9.13 4.35 26.76 146 bps -2.00 50.91 50.91 50.91 31bps
*Standalone

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@uniconindia.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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