Development Credit Bank Ltd

Event Update: Capital infusion to strengthen balance sheet and move in line with RBIs guideline of bringing down promoters stake
Fundamental Grade Valuation Grade Industry 2/5 (Moderate fundamentals) 5/5 (CMP has strong upside) Banking

YEARS

MAKING MA RK
S ET
CTION BE TT FUN ER

March 20, 2012 Fair Value CMP CFV MATRIX

Excellent Fundamentals

Rs 61 Rs 44

Development Credit Bank Ltd (DCB Bank) has recently done a QIP of Rs 940 mn at Rs 47.84 per share as well as got an approval from its Board of Directors to issue preferential allotment to Wolfensohn Capital Partners, Tano Mauritius India and TVS Shriram of Rs 987 mn at Rs ~47.84 per share resulting in total equity infusion of Rs 1.9 bn. CRISIL Research views the development as positive as we believe that the capital injection will not only strengthen the banks balance sheet but also help the bank to move in line with the RBIs guideline of bringing down the promoters stake to 10% by FY14. We reiterate our fundamental grading of 2/5 on DCB Bank, indicating that its fundamentals are moderate relative to other listed securities in India. DCB Banks board approves preferential allotment of shares to Wolfensohn Capital Partners, Tano Mauritius India and TVS Shriram DCB Banks Board of Directors, on March 14, approved issue and preferential allotment of new shares to Wolfensohn Capital Partners, Tano Mauritius India and TVS Shriram. Accordingly, the bank will issue ~20.6 mn new shares at a price of ~Rs 47.8, aggregating to Rs 988 mn. The new capital is expected to flow in by end of March 2012. The management plans to use the new capital (QIP and preferential allotment) for branch expansions as well as augmenting loan book; however, we expect the bank will continue lending cautiously. Moving in line with RBI guideline to bring down promoters stake RBI had issued a guideline to DCB Bank to bring down its promoter (Aga Khan Fund) stake to 10% by FY14. Post the recent QIP, the promoter stake has reduced to 21% from 23.1% as of December 2011. Further, post the preferential allotment, we expect the promoter stake to decline to 19.2%. Balance sheet to strengthen with CRAR of above 15.4% in FY13 On account of the QIP infusion of Rs 940 mn and preferential allotment of Rs 987 mn expected in FY12, we believe the capital to risk weighted asset ratio (CRAR) will enhance to 16.1% in FY12 from 13.3% in FY11. We expect the core capital tier I capital to increase to 14.2% in FY12 from 11.1% in FY11. Considering the strengthening of the banks balance sheet, we have raised our loan book growth estimates by 60 bps to 18.2% in FY13 and 170 bps to 23.0% in FY14. We expect the operating expenses to increase due to branch expansion and addition of staff to grow the loan book. Expect FY12 ROE estimate to decline marginally because of dilution Our FY12 ROE estimate is expected to decline by ~120 bps despite improvement in PAT because of the dilutive impact of the newly issued shares. Valuations the current market price has strong upside We maintain our fair value estimate of Rs 61 per share.

5
Fundamental Grade

4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) 52-week range (Rs)/(H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5257/17273 DCB 10 22.0 9,678/194 66/30 1.3 79 4240,000 199

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 23.1% 30-Jun-11 Promoter 23.1% 30-Sep-11 FII 1.9% 11.7% 2.1% 11.1% 2.3% 5.5% 23.1% 31-Dec-11 DII 10.5% 7.5% 21.0% 6-Mar-12 Others 63.3% 63.7% 69.1% 61.0%

KEY FORECAST
(Rs mn) Total Income Profit after tax Net interest margins Capital adequacy ratios Net NPAs to net advances (%) EPS (Rs) Adjusted book value (Rs) P/E (x) P/ABV (x) RoE (%) CMP: Current market price Source: Company, CRISIL Research estimates FY10 2,491 (785) 2.8 14.9 3.1 -3.9 21.7 -8.2 1.5 -14.5 FY11 3,012 214 3.1 13.3 1.0 1.1 26.2 42.8 1.8 3.9 FY12E 3,423 502 3.1 16.1 1.0 2.1 31.5 21.1 1.4 7.3 FY13E 4,207 853 3.1 15.4 1.1 3.5 34.4 12.4 1.3 10.0 FY14E 5,288 1,382 3.2 15.1 1.1 5.7 36.8 7.7 1.2 14.4

PERFORMANCE VIS--VIS MARKET

Returns 1-m DCB Bank NIFTY -12% -6% 3-m 28% 14% 6-m -6% 4% 12-m 5% -2%

ANALYTICAL CONTACT
Chetan Majithia (Head) Vishal Rampuria Elizabeth John Client servicing desk +91 22 3342 3561 clientservicing@crisil.com chetanmajithia@crisil.com vrampuria@crisil.com ejohn@crisil.com