Thrissur-based South Indian Bank Ltd has emerged as the largest investor in the recently concluded qualified institutional placement (QIP) of Development Credit Bank Ltd (DCB). South Indian Bank subscribed to nearly one-third of the Rs 94 crore issue for Rs 28.7 crore.
South Indian Bank now holds 3.55 per cent stake in DCB, which will make it the single largest non-promoter shareholder. Backed by funds like Ascent Capital and Argonaut Private Equity, South Indian Bank’s market capitalisation is three times more than that of DCB.
Other shareholders in DCB include Tata Capital and India’s largest mortgage firm Housing Development Finance Corporation (HDFC).
DCB completed its second leg of fundraising by raising Rs 94 crore via the QIP, which came after it announced a preferential offer to raise Rs 100 crore from three private equity firms, bringing the total fundraise to Rs 194 crore.
The bank said on February 24 that it was selling 9.34 per cent stake to private equity firms Tano Capital , TVS Capital and Wolfensohn Capital Partners through a preferential issue. While Tano Mauritius India FVCI II is picking up 3.72 per cent stake, Wolfensohn Capital Partners will own 2.78 per cent stake and TVS Shriram Growth Fund I will acquire 2.84 per cent stake.
The current deal would also dilute the stake of Aga Khan Fund for Economic Development (AKFED), which currently holds 21.84 per cent stake. The Reserve Bank of India has asked the Aga Khan Fund to reduce the promoter holding to 10 per cent by 2014.
Both the preferential issue and the QIP were closed at Rs 47.84 a unit.
For Q3 FY12, Development Credit Bank reported 90 per cent increase in net profit to Rs 15.6 crore, compared to the same period last year. Its deposits grew 10 per cent to Rs 6,191 crore while advances were up 9 per cent to Rs 4,306 crore during the quarter, compared to the same period in FY10. For FY11, Development Credit Bank reported 33.6 per cent increase in net sales to Rs 189 crore with profit-after-tax turning positive to Rs 21 crore against a loss of Rs 21 crore in the previous fiscal.
“We expect the improvement efforts of the bank will continue over the next couple of years, which will drive the bank’s growth going forward. We also expect DCB’s operational restructuring to drive traction on fee income streams and improve cost efficiency. Given that we expect provisions to decline going forward, we believe that the bank’s net profit is likely to grow at a CAGR of 80.5 per cent over FY11?FY13E. This is also expected to significantly improve the RoE and RoA for the bank (RoE from 3.9 per cent in FY11 to 9.1 per cent in FY13E and RoA from 0.3 per cent in FY11 to 0.8 per cent in FY13E) with a target price of Rs 65 (per DCB share),” stated a January report from Nirmal Bang.