Development Credit Bank (Q4 FY13)
India Infoline News Service | Mumbai |
DCB is strongly capitalized with CAR & tier I ratio of 13.6% and 12.6% respectively, more-than-commensurate to meet its balance sheet expansion plan and Basel III norms.
CMP Rs44, Target Rs55, Upside 24.3%
Source: Company, India Infoline Research
Financial Summary
- DCB’s loan book grew by 10.4% sequentially, almost in-line with our expectation of 9%. The robust growth was largely driven by Agri & Inclusive Banking segment (35% qoq; a seasonal impact to meet the year-end Priority sector target) followed by Retail (11.9% qoq) and Corporate (9.6% qoq) segments. Bank plans to add 20-30 branches in FY14 primarily to meet its PSL target (for direct lending) and support CASA mobilization. Strong yoy credit growth momentum (24.6%) was supported by Retail (46%) and Corporate (30.1%) segments. Growth in SME+MSME segment was deliberately slowed (6.2% yoy) owing to asset quality issues confronted by this segment. Within Retail, mortgages continued to be the main growth driver posting 12.6% qoq/54.6% yoy growth. Management has guided 23% credit growth for FY14.
- Deposits grew faster than advances by 10.7% qoq/32% yoy, resulting in decline in Credit/Deposit ratio from 83.4% in FY12 to 78.7% in FY13. Sluggish growth in CASA deposits (4.1% qoq/11.6% yoy) led to decline in CASA ratio by 1.7% qoq and 5% yoy. We expect this ratio to improve going forward given the branch expansion plans of the bank. Share of Wholesale TDs increased from 10.6% of total deposits in Q3 FY13 to 11.3% in Q4 FY13. Traction in NRI deposits continued to remain robust reporting a growth of 14.9% qoq and 69.3% yoy.
- NIM rose by 14bps qoq to 3.52% largely driven by strong growth in investments (24.1% qoq/33.4% yoy). Bank is structurally improving upon its priority sector yield by focusing on direct lending rather than portfolio buyout (relatively lower-yielding). Both YoA and CoD rose ~10bps sequentially offsetting the resulting impact on margin. Robust traction in retail lending, structural improvement in priority sector portfolio and improvement in deposit profile is likely to keep the margin in steady state. Management has guided a NIM of 3-3.25% for FY14.
- Asset quality showed remarkable improvement with GNPA ratio declining from 3.8% in Q3 FY13 to 3.2% in Q4 FY13. This happened mainly on account of significant recovery and up-gradations. Delinquency ratio rose marginally from 1.4% in Q3 FY13 to 1.5% in Q4 FY13. A large part of the delinquencies in FY13 are attributed to SME+MSME segment. Thereby, bank has become very selective and cautious in SME lending. We expect asset quality to improve further given the bank’s cautious approach in lending and effective monitoring. PCR stands strong at 85.7%, one of the best in the industry.
- Non-interest income reported a healthy growth of 14.4% sequentially driven by strong CEB fee (11.7% qoq) and sale of investments (92.6% qoq). Cost/Income ratio improved by 6ppt from 74.6% in FY12 to 68.6% in FY13. Additional opex arising out of new branches will be offset by the improving productivity of the existing branches and healthy growth in non-interest income. We expect a further improvement in Cost/Income ratio in the coming quarters.
- DCB is strongly capitalized with CAR & tier I ratio of 13.6% and 12.6% respectively, more-than-commensurate to meet its balance sheet expansion plan and Basel III norms. RoA is expected to remain above 1% supported by healthy margin and improvement in operating efficiency. With unabsorbed losses to the tune of Rs2.2bn currently, DCB will not be required to make any tax payments for next 5-6quarters.
- DCB has consistently exhibited strong performance even in challenging times. Given the healthy margin, improvement in asset quality and operating efficiency, robust PCR, strong capitalization and resulting upward trending RoA, we continue to remain upbeat on our outlook for the bank. Maintain BUY with target price of Rs55.
| (Rs mn) | Q4 FY13 | Q3 FY13 | % qoq | Q4 FY12 | % yoy |
| Total Interest Income | 2,532 | 2,294 | 10.4 | 1,933 | 31.0 |
| Interest expended | (1,717) | (1,574) | 9.1 | (1,363) | 26.0 |
| Net Interest Income | 815 | 720 | 13.2 | 571 | 42.9 |
| Other income | 331 | 289 | 14.4 | 299 | 10.6 |
| Total Income | 1,146 | 1,009 | 13.6 | 870 | 31.8 |
| Operating expenses | (716) | (692) | 3.5 | (630) | 13.5 |
| Provisions | (89) | (49) | 82.8 | (66) | 34.4 |
| PBT | 341 | 269 | 27.0 | 173 | 97.2 |
| Tax | - | - | - | - | - |
| Reported PAT | 341 | 269 | 27.0 | 173 | 97.2 |
| EPS | 5.5 | 4.3 | 26.9 | 2.9 | 89.8 |
| Key Ratios | Q4 FY13 | Q3 FY13 | chg qoq | Q4 FY12 | chg yoy |
| NIM (%) | 3.5 | 3.4 | 0.1 | 3.1 | 0.4 |
| Yield on Advances (%) | 12.8 | 12.7 | 0.1 | 12.9 | (0.1) |
| Cost of Funds (%) | 7.8 | 7.7 | 0.1 | 7.6 | 0.3 |
| CASA (%) | 27.2 | 28.9 | (1.7) | 32.1 | (5.0) |
| C/D (x) | 78.7 | 78.9 | (0.2) | 83.4 | (4.7) |
| Non-interest income (%) | 40.6 | 40.2 | 0.4 | 52.4 | (11.9) |
| Non-interest in/Int exp (%) | 19.3 | 18.4 | 0.9 | 22.0 | (2.7) |
| Cost to Income (%) | 62.5 | 68.5 | (6.1) | 72.5 | (10.0) |
| Provisions/Avg Advances (%) | 0.6 | 0.3 | 0.2 | 0.6 | 0.0 |
| RoA (%) | 1.3 | 1.1 | 0.2 | 0.6 | 0.7 |
| CAR (%) | 13.6 | 13.7 | (0.1) | 15.4 | (1.8) |
| Gross NPA (%) | 3.2 | 3.8 | (0.6) | 4.4 | (1.2) |
| Net NPA (%) | 0.8 | 0.7 | 0.0 | 0.6 | 0.2 |
Financial Summary
| Y/e 31 Mar (Rs m) | FY12 | FY13E | FY14E | FY15E |
| Total operating income | 3,304 | 4,014 | 4,788 | 5,869 |
| yoy growth (%) | 9.7 | 21.5 | 19.3 | 22.6 |
| Operating profit (pre-provisions) | 838 | 1,261 | 1,595 | 2,133 |
| Net profit | 551 | 1,021 | 1,228 | 1,469 |
| yoy growth (%) | 157.1 | 85.3 | 20.3 | 19.7 |
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