Development Credit Bank (Q2 FY13)

India Infoline News Service | Mumbai |

Advances grew by 4.1% sequentially, quite close to our expectation of 3.5%.

CMP Rs46, Target Rs55, Upside 18.4% 
  • Advances grew by 4.1% sequentially, quite close to our expectation of 3.5%. The yoy credit growth momentum continued to be strong at 31.4%. In-line with management strategy, Retail was the main growth driver, reporting 12.5% qoq growth. Within Retail, mortgages (34% of total advances) reported a healthy growth of 9% qoq /28% yoy. Corporate and SME+MSME book grew in line with the lending portfolio, by 4.1% sequentially. Agricultural book de-grew by 12% qoq due to run down of short term loans advanced previously. Bank will be selective and extremely watchful in Corporate and SME+MSME lending owing to the challenges confronted in these segments. Going forward, Mortgages, SME+MSME, Gold loans and CVs will be the key areas of focus. Management has targeted a credit growth of 25%+ in FY12.
  • Deposits posted a 4.5% qoq growth versus our expectation of 5%. With deposits growing at a faster pace than advances, C/D ratio decreased by 1ppt point to 79% in Q2 FY13. Compression in C/D ratio in H1 has been a trend in DCB as deposit growth has always been stronger in H1 compared to H2. Accordingly, we expect an up-tick in C/D ratio in H2 FY13. Despite a 6.9% sequential de-growth in Wholesale TDs, deposits grew at a healthy pace, driven by Retail TDs (5.9% qoq) and CASA deposits (5.1% qoq). Deposit profile has strengthened with a decline in proportion of Wholesale TDs, from 12.1% in Q1 FY13 to 10.8% in Q2 FY13. DCB is looking forward to maintaining CASA ratio at 30%+. Management has guided a deposit growth of 20%+ in FY13. Going forward, NR deposits (~5% of total deposits) will contribute a material portion of the deposit franchise.
  • Backed by stable YoA and decrease in CoF (6bps), NIM rose by 6bps to 3.24% in Q2 FY13. Focus on high-yielding credit segments, stable deposit profile (lower reliance on volatile bulk deposits and stable CASA ratio) and improvement in C/D ratio will result in stable margins going forward. High CoF, one of the major concerns for DCB, is now trending downwards as re-pricing of TDs at higher rates is almost completed. With these positives, management guidance of 3-3.25% NIM in FY13 looks attainable.
  • Asset quality continued to show steady improvement, with GNPA ratio falling by 32bps to 3.9% and NNPA ratio falling by 7bps to 0.7%. Net NPA/Networth ratio fell further to 4.3%, from 4.7% in the previous quarter. Delinquency ratio stood at 0.8%, compared to 1.6% in the previous quarter. During the quarter, four accounts from SME+MSME segment, aggregating Rs110mn, slipped into NPA. Two accounts (Rs150mn) that slipped in Q1 FY13 are considered under the Sarfaesi Act and likely to be upgraded/recovered in Q3 FY12. PCR of 89.3%, one of the highest in the industry, lends comfort during uncertain times. Bank does not foresee any major stress on the asset quality. In our view, GNPA ratio is likely to improve further given the bank’s focus on high quality assets, secured lending and strong recovery.
  • Cost/Income ratio improved by 90bps to 71.9%. However, the bank is still operating at a very high level, curbing the extent of profitability. Despite such high C/I ratio, DCB has delivered RoA of 0.96%. Further improvement in operating efficiency will boost RoA. Currently, the bank operates through 87 branches and has license for opening 5 more branches. Bank will utilize all the pending licenses and open few more branches in rural areas (in cluster) to mobilize CASA and to meet its Priority Sector Lending obligation.
  • With CAR and Tier ratio of 14% and 12.7%, respectively, DCB is adequately capitalized to meet its planned balance sheet expansion in the medium term. However, the requirement of bringing the promoter’s shareholding to 10% by Mar’2014 would require further capital infusion within the aforementioned period.
  • Keeping in view the consistently stellar performance of DCB - stable margin, favourable deposit mix, improving asset quality, strong fee traction, higher level of provisioning, robust capitalization and up-trending RoA, we increase our FY13/FY14 earnings estimate by 23%/25%. Thereby, maintain BUY with increased target price of Rs55.
Result table
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 2,199 2,135 3.0 1,785 23.2
Interest expended (1,530) (1,496) 2.3 (1,194) 28.1
Net Interest Income 670 639 4.7 591 13.3
Other income 275 275 0.0 231 19.0
Total Income 945 914 3.3 822 14.9
Operating expenses (680) (666) 2.0 (614) 10.8
Provisions (44) (59) (26.2) (75) (42.1)
PBT 221 189 17.0 133 66.1
Tax - - - - -
Reported PAT 221 189 17.0 133 66.1
EPS 3.7 3.1 17.0 2.7 38.2
 
Key  Ratios Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) 3.2 3.2 0.1 3.4 (0.2)
Yield on Advances (%) 12.7 12.7 (0.0) 12.7 0.0
Cost of Funds (%) 7.7 7.8 (0.1) 7.0 0.8
CASA (%) 30.4 30.3 0.2 33.2 (2.7)
C/D (x) 79.5 79.8 (0.3) 68.9 10.6
Non-interest income (%) 41.1 43.0 (1.9) 39.1 2.0
Non-interest in/Int exp (%) 18.0 18.4 (0.4) 19.4 (1.4)
Cost to Income (%) 71.9 72.8 (0.9) 74.6 (2.7)
Provisions/Avg Advances (%) 0.3 0.4 (0.1) 0.7 (0.4)
RoA (%) 1.0 0.9 0.1 0.7 0.3
CAR (%) 14.0 14.5 (0.5) 13.1 0.9
Gross NPA (%) 3.9 4.2 (0.3) 5.8 (1.9)
Net NPA (%) 0.7 0.8
BSE 186.40 4.15 (2.28%)
NSE 187.50 5 (2.74%)

***Note: This is a NSE Chart

 

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