Introduction: Development Credit Bank (DCB) is one of the emerging private sector banks in India and provides to its customers, access to over 30,000 ATMs and more than 80 state-of-the-art branches spread over ten states and two union territories. It has sought permission from the central bank to open 50 more branches. Earlier, the bank had announced plans to raise Rs.3--4 billion during the current fiscal to fund its growth plans for the next 18 months.
The wheels of change has made a positive difference and DCB is making its presence felt. The Bank has recently launched several value added initiatives and intends to become one of the country’s preferred and profitable private sector banks, providing a comprehensive suite of “best in class” products for specific market segments in chosen geographies. DCB has initiated a liability and select asset product led strategy, through a mix of owned and outsourced products and multi-channel capabilities.
Shareholding Pattern: The promoters' holding is 26.51% while among the non-promoters' holding, institutional investors hold 17.55% and the general public holds 28.25%. Among the institutional holding FIIs holding has decreased from 30.03% in Q4FY08 to mere 12.84% in Q1FY09, which is a positive sign (or we can see there are further scope of FIIs cornering the stock in future). Moreover the holding of Private Corporate Bodies has gradually increased from 10.14% in Q4FY08 to 15.49% in Q1FY09---this is a great news as far as this aggressive private sector bank is concerned.
Also, while the promoters holding has remained constant in the last few quarters, the holding of Mutual Funds/Banks/LIC/Financial Institutions, have almost doubled in the last few quarters, adding to already present positive developments. Besides this, State Bank of India, Housing Development Finance Corporation Ltd Tata Capital Ltd holds substantial stake in the company. There were rumours some months back that the bank could be taken over by any other these three entities.
Financials: For FY08, the results were simply excellent even when the interest rates peaked out and CRR rate was hiked a number of times. For FY08, the total income of the company came out to be Rs.736.7 Cr as against Rs.439.42 Cr in the same period previous year (almost doubled). Net profit of the company jumped to Rs.38.3 Cr in FY08 as against Rs.7.4 Cr in the same period previous year. The capital adequacy ratio also improved in FY08 to 13.38% as against 11.34% in FY07. Due to lot of initiatives taken during the whole fiscal of FY08, the net profit margin shot up to 6.68% as against 2.12% in the same period previous year.
In Q1FY09, the total income of the company came out to be Rs.204.2 Cr as against Rs.148.1 in the same period previous year. The profit before tax (PBT) of the company for Q1FY09, is a whooping Rs.25.1 Cr as against Rs.8.3 Cr in the same period previous year. However, the net profit for Q1FY09 came out to be Rs.5.4 Cr as against Rs.5.74 Cr in the same period previous year, due to higher (almost 6 times jump) provisioning for Contingencies. Capital Adequacy Ratio also increased considerably 13.67% in Q1FY09 as against 10.475 in the same period previous year. Thus the company is doing excellently well in the financial front.
Triggers:
1. It has a network of 80 state-of-the-art branches and extension counters spread across the states of Maharashtra, Gujarat, Andhra Pradesh, Karnataka, New Delhi, Rajasthan, Goa, Tamil Nadu, Haryana, West Bengal, Union Territories of Daman & Diu and Dadra & Nagar Haveli. It has a dedicated staff of over 1800.
2. Built on over 77 years of trust, tradition and togetherness, DCB was converted into a Scheduled Commercial Bank on May 31,1995, in the wake of India’s economic liberalisation. It was the only co-operative bank, which successfully crossed over and thrived in the face of change. The company has travelled a long route and made its presence felt in the domestic money market.
3. DCB Ltd is not just a Bank but is a Financial Supermarket. DCB Ltd offers an extensive range of products across its branches. Suitable variants of the basic products like savings and current accounts as well as innovative products such as the ‘DCB Trio’ and ‘Easy Business,’ keep DCB ahead of the pack. Demat Account and a range of investment products like mutual funds, insurance and bonds make the product offering complete.
4. Since its inception, DCB has always taken an active interest in developing low-cost customer deposit products and providing for the needs of small and medium businesses in select regions. It continues to fulfil every consumer need with great enthusiasm. The Bank is also suitably equipped with the latest versions of Finacle from Infosys and Oracle to provide seamless service to its customers.
5. Very recently this Mumbai-based Development bank, reduced its exposure to unsecured personal loans in a bid to maintain its net interest margins. According to a top source, to maintain net interest margins the bank has brought down its exposure to personal loans from 17 percent last fiscal which will be reduced to around to 12-13 percent probably by the middle of the next financial year.
The bank expects to see a growth rate of 30 percent in advances and a 35-40 percent growth in deposits in the current fiscal. The banks' net interest margin in 2007-08 was 2.9 percent and would be in the range of 2.9-3.1 percent in the current fiscal. The bank would raise the share of low-cost deposits to about 29-30 percent of its total deposits from its current share of 27 percent.
6. It was wonderful to see how the company improved post IPO. From only a profit of around Rs.66.3 lakhs in Q2FY07, the net profit has jumped to Rs.5.4 Cr in June, 2008 quarter---an almost 8 (eight) fold increase in matter of 2 (two) years. This attests to my arguments that this agresssive bank is moving at a rapid pace and therefore it was once the darling of FIIs. Now the institutions have made its their destination to lap up the shares of this company at brisk pace.
7. Now with RBI cutting the CRR by 150 basis points and further cut expected within some days, some more liquidity will be generated in system. This measure will release more funds of the banks for lending, which were locked-up in the coffers of RBI for a long period. Hence in future we could see massive jump in both the top and bottomlines of most of the banks (Private and PSU). Meanwhile there are also talks of cutting interest rates by the RBI. This is expected to suddenly give a great boost to the loan growth apart from generating a sizable treasury income for the banks in future.
8. The Bank has an active and robust treasury, managing its interest rate risks and liquidity by providing an uninterrupted flow of funds, positioning the Bank for future growth.
Over the last few months DCB aggressively expanded the product portfolio in response to customer needs and feedback. Products such as DCB Privilege Banking for Savings and Current Accounts, DCB Smart Trade, DCB Advantage Credit Card, and DCB Trio account, have been very popular with customers. Customers also enjoy a host of benefits such as an international debit card, DCB Customer Care phone banking, and internet banking.
9. The company is planning to get into asset management business and with a partner but till now had to shelve the idea because of bad market conditions. Development Credit Bank will enter this space as soon as the market condition improves a bit. The bank plans to raise funds in the near future but the amount will depend on the market conditions.
Conclusion: Considering all the factors mentioned above, it will be prudent to buy DCB Ltd at the CMP of Rs.29.75 for a target of Rs.55--Rs.65 in the next 3 -4 months time frame. Please put a SL of Rs.22 for any short term trade. This aggressive bank is going to surprise most shareholders in terms of growth and creating value for the shareholders.