Sunday, October 16, 2011

DCB - Buy on declines

Nirmal Bang is bullish on Development Credit Bank (DCB) and has recommended buy rating on the stock with a target of Rs 65 in its October 14, 2011 research report.

“Development Credit Bank (DCB)’s performance for Q2FY12 was broadly in line with our estimates. DCB reported a net profit of Rs.13.2 crs in Q2FY12 resulting in a growth of 177.6% on a YoY basis and a QoQ increase of 51.0%. The bank’s asset quality has improved and the bank reported overall decline in its gross and net NPAs. The bank's CASA deposits stood at 33.2% in Q2FY12, down from 33.3% in Q1FY12 and 34.6% in Q2FY11.”

“Net Interest Income increased by 27.4% on a YoY basis and 13.9% on a sequential basis in Q2FY12 to Rs 59 crs resulting from the increase in base rate. Net Interest Margin (NIM) of the bank improved sequentially to 3.41% in Q2FY12 from 3.1% in Q1FY12. Non Interest Income of the bank declined 14.0% YoY and 1.3% on QoQ basis.

The main reason was decline in forex income and flattish commission income. The share of non interest income as % of total income stood at 28.1% in Q2FY12. As the bank continued to invest in new frontline staff the bank’s employee expenses increased 26.1% YoY and 3.7% QoQ in line with expectation.

Despite that the cost to income ratio declined from 78.1% in Q1FY12 to 74.6% in Q2FY12. DCB’s loan book grew by 12.4% YoY and 1.9% QoQ in Q2FY12 at Rs 4,315 crs. On deposit front deposits grew at 13.9% on YoY and 4.7% on QoQ basis. Credit to deposit ratio stood at 69%. Management is targeting a credit growth of 16- 17% for FY12E.”

“At the current price of Rs. 43, DCB is trading at a PE of 16.29x of FY12E EPS & 11.05x of FY13E EPS and at P/ABV of 1.32x and 1.2x of FY12E & FY13E respectively. We recommend BUY on the stock with a target price of Rs 65,” says Nirmal Bang research report.  

Our recommendation

Below 40 mark the stock could sink to 32 levels by end december.  Long term investors can enter the stock post around 32 levels and hold for a target price of 65 which is 100% gain on the initial investment

Ingenious Investor
Equity Research Division

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