Development Credit Bank - Growth phase to continue... Maintain positive bias - IndiaNivesh

Development Credit Bank (DCB) is a new generation private sector bank promoted by Aga Khan Fund for Economic Development (AKFED) in 1930. It started banking business as co-operative bank and later on converted into private sector commercial bank in 1995. Bank has total network of 101 branches and 260 ATMs spread across 51 locations with asset base of Rs 110 bn till June 2013. AKFED group currently holds 18.47% stake in the bank.

Strong growth in business to continue:

DCB's strategy is to focus on retail business growth i.e. increasing both retail advances and retail term deposits. With strong competence in retail business, management is targeting incremental loan growth to come majorly from secured lending in the form of mortgage and SME / MSME segments. In Q1FY14, the robust growth was driven mainly by growth in mortgage sector (44% y-o-y) which constitutes 40% of the total loan portfolio. In mortgages, the ratio between home loans (HL) and loan against properties (LAP) is around 40:60 and DCB plans to maintain this ratio given higher return through LAP. LAP lending is essentially a cash flow based lending where majority of loans are tendered for expansion. Bank is very cautious in lending to customers who are new to the bank. Under SME lending, maximum ticket size for lending is capped at Rs 30 mn and all the fresh lending is backed by 100% collaterals for new customers.

Inspired by strong advances growth along with a continuous improvement in asset quality, bank has set a target of doubling its advances book over next 3 years with a strong focus on high yielding SME and secured mortgage book. If we translate it into numbers then loan book has to grow at a CAGR of 24% over FY14-16E. Bank is confident in achieving this target as Bank will be able to bring new SME business through their specialized services for SMEs.

In Q1FY14, Deposits grew by 22% y-o-y (-1% q-o-q) to Rs 83bn on account of 17% y-o-y jump in retail deposits. Retail deposits stood at 80% of total deposits as of Q1FY14 giving stable resource of funding to the bank. The bank would like to maintain its retail deposits above 70% level of total deposits going forward. CASA ratio increased by 34 bps to 27.5% as compared to 27.2% in Q4FY13. Flattish ratio was mainly due to subdued growth in current account (CA) deposits due to its volatile nature. The management is of the view that it will focus more on saving account (SA) deposits going forward and bring CASA ratio above 30.0%. This will also help the bank to reduce its cost of funds. It has added 7 branches in Q1FY14 taking the total network to 101 branches and planning to open 7-8 branches in each quarter of FY14. Further it is targeting total network of 150 branches till the end of FY15 which will help the bank to achieve CASA ratio of over 30.0%.

At CMP of Rs 47, DCB is trading at P/ABV of 1.2 / 1.0 for FY14E / FY15E. We don't have any formal rating on the stock however given the strong turnaround and improving operating matrix, we continue to like the stock for long term perspective.

Source : Equity Bulls

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