DCB Bank Ltd. 1 P a g e

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4 Recommendation HOLD Another strong quarter CMP (16/04/2015) Rs. 120 Target Price Rs. 140 Sector Stock Details Banking BSE Code 532772 NSE Code Bloomberg Code DCB DEVB IN Market Cap (Rs cr) 3383 Free Float (%) 83.62% 52- wk HI/Lo (Rs) 127/60 Avg. volume BSE (Quarterly) 283,220 Face Value (Rs) 10.0 Dividend (FY 15) 0% Shares o/s (Crs) 28.20 Relative Performance 1Mth 3Mth 1Yr DCB 12.6% 0.9% 82.4% Sensex 1.3% 2.4% 28.1% 130 120 110 100 90 80 70 60 50 40 Shareholding Pattern 31 st Mar 15 Promoters Holding 16.38% Institutional (Incl. FII) 38.17% Corporate Bodies 10.18% Public & others 35.27% Silky Jain (+91 22 3926 8178) Research Analyst silky.jain@nirmalbang.com Year NII (Rs cr) Growth (%) PBP (Rs cr) (DCB) reported another quarter of strong operational performance. NII witnessed robust growth of 38% YoY led by healthy growth in advance book. Profit before provision increased 35.6% YoY. The bank reported PAT of Rs 62.9 cr for Q4FY15; an increase of 60.9% YoY led by creation of Deferred Tax Asset of Rs 9.3 cr. For FY15, PAT stood at Rs 191.2 cr up 26.3% on YoY basis. NIMs stood at 3.75%; up 5 bps on QoQ basis and 16 bps YoY mainly on account of higher CD ratio (83.0% vs 78.8% in Q4FY14 and 80.1% in Q3FY15) and benefit of capital raising. For FY15 NIMs stood at 3.72% vs 3.56% in FY14. Growth was driven by mortgage (+43% YoY), agri (+39% YoY) and corporate (+28% YoY) book. SME/MSME book witnessed marginal uptick of 2.4% QoQ after witnessing decline for seven consecutive quarters. We expect loan growth to be at 25.2% and 23.5% for FY16E and FY17E. Deposits increased 22.1% YoY; while CASA deposits witnessed increase of 14.3% YoY. Growth in deposits was driven by higher retail term deposits. Improving CASA ratio (currently at 23.4%) remains a challenge for the bank. While SA has been growing consistently CA growth has been weak due to market conditions. Management has stated that as and when the newly opened branches break even and start contributing business, the CASA ratio may once again inch up and stabilize at ~25% levels. We expect CASA ratio to be at 24.2% by FY17E. Cost-income ratio showed an increase of 150bps qoq at 61.4% in Q4FY15 against 59.8% in Q3FY15. For FY15 cost to income ratio stood at 58.8% vs 62.9% in FY14; an improvement of 410 bps. Operating expenses increased 29.5% YoY led by growth in staff expenses and non-staff expenses. DCB has invested in building infrastructure and has increased its branch network by ~18% YoY to 154. We believe that the cost to income ratio will continue to head southwards as operating leverage kicks in and expect the ratio to improve to 54.9% and 52.6% in FY16E and FY17E respectively. Gross NPAs stood at 1.76% (decline of 11bps qoq) while net NPAs stood at 1.01%. Slippages stood at Rs 85.8 cr in Q4FY15 which included one large corporate account of Rs 65 cr (shipping account from restructured book). As a result total outstanding standard restructured book declined to Rs 50 cr (0.5% of total advances vs 1.2% in Q3FY15). The bank sold ~10 SME accounts to ARCs for Rs 20 cr (Gross value Rs 62 cr and net value Rs 35 cr) at loss of Rs 15 cr which would be amortized over a period of 8 quarters. We remain positive on the bank given the strong growth in earnings and well capitalized and healthy balance sheet. We expect DCB to report 21.3% CAGR growth in PAT over FY15-FY17E leading to RoE of 14.4% and RoA of 1.3% for FY17E. At CMP, DCB Bank is trading at 1.98x and 1.71 FY16E and FY17E Adj BVPS and 14.07x and 11.13x FY16E and FY17E EPS respectively. We maintain our HOLD rating on the stock with a target price of Rs 140 (2.0x P/ABV) indicating an upside of 16.8% from current levels. Margin (%) PAT (Rs cr) EPS (Rs) PE (x) Adj BVPS (Rs) P/ABV (x) RoE (%) FY14A 368 29.5% 188 14.8% 151 6.05 19.83 44.1 2.72 14.0% FY15A 508 38.0% 277 17.5% 191 7.33 16.38 53.2 2.26 13.9% FY16E 626 23.2% 371 19.2% 222 8.53 14.07 60.7 1.98 13.1% FY17E 743 18.6% 458 19.9% 281 10.78 11.13 70.1 1.71 14.4% 1 P a g e

Rs in cr Q4FY15 Q4FY14 YoY Q3FY15 QoQ FY15 FY14 YoY (%) Advances 10,465 7,362 42.2% 9,491 10.3% 10465.1 7362 42.2% Deposits 12,609 9,592 31.5% 11,850 6.4% 12609.1 9592 31.5% Investments 4,471 3,555 25.8% 4,034 10.8% 4470.6 3555 25.8% CASA deposits 2,951 2,379 24.0% 2,818 4.7% 2950.5 2379 24.0% CASA Ratio 23.4% 24.8% 23.8% 23.4% 24.8% Interest Earned 378.8 290.8 30.3% 356.5 6.3% 1422.4 1128.2 26.1% Interest Expended 249.2 196.8 26.6% 234.6 6.2% 914.2 759.9 20.3% Net Interest Income 129.7 94.0 38.0% 121.9 6.4% 508.2 368.4 38.0% NIMs 3.75% 3.59% 3.70% 3.72% 3.56% Other Income 46.3 32.8 40.9% 48.0-3.6% 165.7 138.7 19.5% % of total income 26.3% 25.9% 28.2% 24.6% 27.3% Total Income 175.9 126.8 38.7% 169.9 3.6% 673.9 507.0 32.9% Payment to employees 52.9 39.5 33.8% 49.5 6.8% 196.0 157.1 24.8% Other operating expeneses 55.1 41.0 34.5% 52.0 5.8% 200.5 162.0 23.7% Total operating expenses 107.9 80.5 34.2% 101.5 6.3% 396.5 319.1 24.3% Cost to income ratio 61.4% 63.4% 59.8% 58.8% 62.9% Profit before provisioning 68.0 46.4 46.7% 68.4-0.5% 277.4 187.9 47.6% Provisions 14.3 10.0 43.3% 18.4-22.3% 69.4 36.6 89.8% Profit before tax 53.7 36.4 47.6% 49.9 7.5% 208.0 151.4 37.4% Tax -9.26 0.0 N/A 7.4 N/A 16.85 0.0 Profit after tax 62.9 36.4 73.1% 42.5 48.1% 191.2 151.3 26.3% No of shares 28.2 25.0 28.1 26.1 25.0 N/A EPS 2.23 1.45 53.5% 1.5 47.8% 7.3 6.1 21.1% Capital Adequacy Ratio 14.95% 13.71% 14.44% Gross NPA 1.76% 1.69% 1.87% Net NPA 1.01% 0.91% 1.00% Provision coverage ratio 74.7% 80.5% 77.1% Other highlights NIMs stood at 3.75%; up by 5 bps on QoQ basis and up by 16 bps YoY mainly on account of higher CD ratio. Non-interest income increased 38.3% YoY led by 20% growth in core fee income. On QoQ basis noninterest income witnessed 3.6% decline as last quarter included higher treasury income. SA has witnessed growth of 17% on YoY basis while CA is witnessing lower growth resulting in decline in CASA ratio. NRI deposits grew 36.1% YoY to Rs 1,129 cr. The bank aims to open 25-30 branches every year. Provision coverage declined 240bps qoq to 74.7%. CAR stood at 14.95% as on March 2015 of which Tier I Ratio stood at 14.21%. 2 P a g e

4.00% 3.80% 3.60% 3.59% Net interest margins 3.71% 3.72% 3.70% 3.75% 50.0% 40.0% 30.0% 20.0% 10.0% 25.1% Non interest income 36% 23.9% 19.9% 46% 28.2% 38% 26.3% 3.40% 3.20% 0.0% -10.0% -20.0% -30.0% 1% -24% Non interest income/total income YoY growth 75.0% Cost to income ratio 4.5% Movement of NPA 70.0% 65.0% 60.0% 55.0% 50.0% 62.4% 61.3% 59.8% 61.4% 53.2% 3.5% 2.5% 1.5% 0.5% -0.5% 1.69% 1.78% 1.07% 1.87% 1.76% 0.91% 1.90% 1.01% 0.97% 1.00% Gross NPA (%) Net NPA (%) 14,000 12,000 10,000 8,000 6,000 4,000 Advances and Deposits 12,609 11,850 10,325 10,551 10,900 8,140 8,291 8,793 9,491 10,465 25.5% 25.0% 24.5% 24.0% 23.5% 23.0% CASA % 25.4% 25.5% 25.0% 23.8% 23.4% Advances Deposits 3 P a g e

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Retail and CASA deposit mix 77% 79% 83% 82% 80% 25% 25.38% 25% 24% 23% Retail deposits CASA 3.0% 2.0% 15.0% 43.0% Break up of advance book 1% Corporate Banking SME+MSME 23.0% Mortgages Agri inclusive banking Commercial Vehicle 13.0% Gold loans Others 140 P/E - Forward 160 P/BV- Forward 120 140 100 120 80 60 40 100 80 60 40 20 20 0 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Price 6x 8x 10x 12x 14x 0 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Price 0.5x 1x 1.5x 2x 2.5x 4 P a g e

Financials Profitability (Rs. Crs) FY13 FY14 FY15 FY16E FY17E Balance Sheet (Rs. Crs) FY13 FY14 FY15 FY16E FY17E Interest earned 916 1,128 1,422 1,731 2,078 Deposits 8,364 10,325 12,609 15,707 19,020 Interest expended 632 760 914 1,105 1,335 (of which CASA) 2,272 2,581 2,951 3,770 4,603 Net interest income 284 368 508 626 743 Borrowings 1,526 860 1,164 1,047 1,095 Non interest income 117 139 166 194 223 Other liab and prov 386 584 771 848 933 Total income 401 507 674 821 966 Total liabilities 10,276 11,769 14,544 17,602 21,048 Operating expenses 275 319 396 450 509 Equity capital 250 250 282 282 282 Staff costs 137 157 196 215 237 Reserves and surplus 750 901 1,303 1,526 1,807 Other Op Exp 138 162 200 236 272 Net worth 1,000 1,151 1,585 1,808 2,089 Profit before prov 126 188 277 371 458 Total liab and equity 11,279 12,923 16,132 19,413 23,140 Provisions 24 37 69 62 61 Cash and bank bal 883 690 719 896 943 Profit before tax 102 151 208 309 396 Investments 3,359 3,634 4,471 4,882 5,426 Taxes 0 0 17 87 115 Advances 6,586 8,140 10,465 13,102 16,177 Net profit 102 151 191 222 281 Fixed assets 239 239 237 256 276 Quarterly (Rs. Crs) Mar.14 June.14 Sep.14 Dec.14 Mar.15 Other assets 211 221 241 277 319 Net interest income 100.0 139.0 117.7 121.9 129.7 Total assets 11,279 12,923 16,132 19,413 23,140 Non interest income 33 34 37 48 46 Total income 133 173 155 170 176 Key Ratios FY13 FY14 FY15 FY16E FY17E Operating expenses 83 92 95 102 108 Yield Ratios Operating profit 50 81 60 68 68 Avg Yield on Assets 10.1% 10.0% 10.2% 10.1% 10.1% Provisions 11.0 22.9 13.7 18.4 14.3 Yield on Advances 12.0% 11.8% 11.8% 11.6% 11.5% Profit before tax 39 58 46 50 54 Yield on Investments 6.7% 7.8% 7.4% 7.3% 7.2% Taxes 0 14 5 7-9 Cost of Int Bearing Liab 7.3% 7.2% 7.3% 7.2% 7.2% Net profit 39 45 41 43 63 Cost of Deposits 6.9% 6.7% 6.7% 6.6% 6.5% Profitability Ratios FY13 FY14 FY15 FY16E FY17E Net Interest Spread 2.8% 2.8% 2.9% 2.9% 2.9% Cost / Income Ratio 68.6% 62.9% 58.8% 54.9% 52.6% NIM 3.3% 3.3% 3.6% 3.6% 3.6% Net profit margin 25.4% 29.8% 28.4% 27.1% 29.1% Balance Sheet Ratios RONW 11.0% 14.0% 13.9% 13.1% 14.4% Gross NPA 3.18% 1.69% 1.76% 1.79% 1.84% Growth Ratios FY13 FY14 FY15 FY16E FY17E Net NPA 0.75% 0.92% 1.01% 0.91% 0.86% Advances growth 24.6% 23.6% 28.6% 25.2% 23.5% Return on Assets 1.0% 1.3% 1.3% 1.3% 1.3% Deposit growth 32.0% 23.5% 22.1% 24.6% 21.1% CASA 27.2% 25.0% 23.4% 24.0% 24.2% NII growth 24.9% 29.5% 38.0% 23.2% 18.6% Loan-deposit ratio 78.7% 78.8% 83.0% 83.4% 85.1% PAT growth 85.4% 48.2% 26.3% 16.4% 26.4% CAR 13.6% 13.7% 15.0% 14.2% 13.5% Pre prov profit growth 50.5% 49.0% 47.6% 33.6% 23.5% Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% Non interest inc growth 16.0% 18.5% 19.5% 17.3% 14.8% Ratios FY13 FY14 FY15 FY16E FY17E Valuation Ratios FY13 FY14 FY15 FY16E FY17E P/BV 2.99 2.60 2.13 1.87 1.62 EPS 4.16 6.05 7.33 8.53 10.78 P/ABV 3.09 2.72 2.26 1.98 1.71 BVPS 40.1 46.1 56.3 64.2 74.2 P/E 28.84 19.83 16.38 14.07 11.13 Adjusted BVPS 38.8 44.1 53.2 60.7 70.1 5 P a g e

NOTES Disclaimer: Nirmal Bang Securities Private Limited (hereinafter referred to as NBSPL )is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX stock Exchange Limited. NBSPL is in the process of making an application with SEBI for registering as a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014. NBSPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst (in case any financial interest is held kindly disclose). NBSPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBSPL /analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. This document, at best, represents Analyst opinion and is meant for general information only. NBSPL, its directors, officers or employees shall not in any way be responsible for the contents stated herein. NBSPL expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities Nirmal Bang Research (Division of Nirmal Bang Securities PVT LTD) B-2, 301/302, Marathon Innova, Opp. Peninsula Corporate Park Off. Ganpatrao Kadam Marg Lower Parel (W), Mumbai-400013 Board No. : 91 22 3926 8000/8001 Fax. : 022 3926 8010 6 P a g e