Research Notes – October 11, 2010

Reiterate ‘buy’ on DCB – TP hiked to Rs.70

 Buy call on Development Credit Bank (DCB) is reiterated with an upward revised target price of Rs.70 over one year, as against the earlier target of Rs.60.

 The bank is expected to report profit for the second half of FY11, after 8 quarters of loss.

 Improved performance is expected due to declining loan loss provisions (LLP), pick up in balance sheet growth and better fee income stream.

 The stock has already provided 37% return since initiation of the buy call on July 8, 2010 while the Bankex returned 30% during this period.

 The bank is expected to deliver good performance due to growing asset book while cutting down exposure to risky loans, focus on net interest margin (NIM) by concentrating on CASA deposits, better cost efficiencies and focus on non – interest income streams.

 CRISIL and Fitch have upgraded outlook on the bank and the Reserve Bank of India has granted two new bank licenses in the last quarter.

 The stock is expected to re- rated within a few quarters due to its better performance and the ROE is expected to improve to 9.1% by FY12.

 Based on the positive outlook, buy recommendation on the stock is reiterated with a higher target price of Rs.70 over one year.

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