BNP - Development Credit Bank 08072010

8/7/2019 BNP - Development Credit Bank 08072010

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BNP Paribas Securities Asia research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://equities.bnpparibas.com. Please contact yoursalesperson for authorisation. Please see the important notice on the inside back cover.

TARGET INR60.00

PRIOR TP N/ADev Credit Bank DEVB INCLOSE INR44.95

BUYINDIA / BANKS UP/DOWNSIDE +33.5%

The second coming Initiating coverage on DCB with a BUY and TP of INR60.00.We expect re-rating on turnaround potential in FY11-12.We estimate loan book CAGR of 23% over FY10-12. Trades at 1.4x our FY12E adj BV for FY12E adj RoE of 9%.

Turnaround in the offingWe initiate coverage on DevelopmentCredit Bank (DCB) with a BUY and a TP

of INR60.00. DCB is a private sector bankwith 80 branches across India and a loanbook of INR35b spread across thecorporate, retail and SME segments.

Under a new leadership, DCB is driving asignificant transformation across multiplefronts to address losses suffered on thesharp spike in delinquencies witnessed inFY08-10.The bank has cleaned up itsbooks by aggressively writing off NPLsand cutting down on exposure to riskyassets. DCB has also taken steps to lowerits dependency on wholesale funding (through focus on CASA and retail

term deposits) and shore up capital adequacy. DCB has beenrestructuring its distribution network and process flows to drive strongertraction on non-interest income and reduce operating costs. DCBs effortsto diversify its exposure through a push on mortgages, SME, micro-SME,mid-corporates and priority sector books has helped, with a 6% y-yincrease in the loan book for FY10, despite reduction in its unsecuredloan portfolio. The proportion of wholesale deposits declined to 18% inFY10, from 47% in FY08, while the NNPL ratio has come down 80bps to3.1%. Opex also declined 16% y-y in FY10. DCB managed to maintainNIMs at 2.8% for FY10, driven by a 400bp y-y improvement in the CASAratio to 35%. We expect the bank to break even by 3QFY11.

Why BUY DCB now?We expect DCB to re-rate on the back of significant improvement in itscore operating metrics in the next few quarters. We expect adjustedROEs to improve to 9% by FY12 on an expanded capital base (factoringin a potential 15% dilution in FY11), helped by a sharp drop in LLPs,control on operating costs, surge in credit offtake and flat NIMs. Weproject loan book and net revenue CAGR of 23% and 15% respectivelyover FY10-12. Key near-term catalysts: A drop in LLPs, credit ratingupgrade, traction on loan book and fee income streams. We present acomparison with IndusInd Bank (IIB IN; see page 12), the otherturnaround story in the sector. We also detail a sensitivity analysis ofDCBs adjusted ROE to the extent of dilution (page 13).

ValuationWe value DCB at a 12-month TP of INR60.00 using a three-stageresidual income model. At our TP, DCB is valued at 1.9x our FY12E ABVand an adjusted ROE of 9%. Key risks include a sudden spike in short-term rates, lower-than-expected credit offtake, higher-than-expecteddilution and key man risk.

HOW WE DIFFER FROM THE STREET

BNP Consensus % Diff

Target Price (INR) 60.00 na na

EPS 2011 (INR) 0.16 na na

EPS 2012 (INR) 2.71 na na

Positive Neutral Negative

Market Recs. 1 0 0

KEY STOCK DATA

YE Mar (INR m) 2011E 2012E 2013E

Operating Profit 36 637 1,094

Rec. net profit 36 637 1,094

Recurring EPS (INR) 0.16 2.71 4.66

Prior rec. EPS (INR) - - -

Chg. In EPS est. (%) N/A N/A N/A

EPS growth (%) (103.9) 1,543.6 71.7

Recurring P/E (x) 272.5 16.6 9.7

Dividend yield (%) 0.0 0.0 0.0

Price/book (x) 1.4 1.3 1.2

ROE (%) 0.5 8.2 12.7

ROA (%) 0.05 0.77 1.09

20

30

40

50

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10

(INR)

(39)

(19)

1

(%)Dev Credit Bank

Rel to MSCI India

Share price performance 1 Month 3 Month 12 Month

Absolute (%) 6.9 33.3 9.9

Relative to country (%) 6.4 33.4 (4.4)

Next results/event July 2010

Mkt cap (USD m) 225

3m avg daily turnover (USD m) 7.8

Free float (%) 77

Major shareholder AKFED (23%)

12m high/low (INR) 49.60/26.95

3m historic vol. (%) 41.2

ADR ticker -

ADR closing price (USD) -

Sources: Bloomberg consensus; BNP Paribas estimates

INDUSTRY OUTLOOK

INITIATION

Abhishek Bhattacharya+91 22 6628 2411

[email protected]

Vijay Sarathi, CFA+91 22 6628 2412

[email protected]

8 July 2010PREPARED BY BNP PARIBAS SECURITIES ASIATHIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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ABHISHEK BHATTACHARYA DEV CREDIT BANK 8 JULY 2010

2 BNP PARIBAS

Contents

1) Turnaround round the corner..................................................................................................................................................... 32) Strong earnings momentum post FY11..................................................................................................................................... 9

Comparison with IndusInd Bank........................................................................................................................................ 12Sensitivity analysis ............................................................................................................................................................ 133) Valuation: BUY with TP of INR60.00 ........................................................................................................................................ 14

Residual income valuation ................................................................................................................................................ 15Recommendation: Look beyond FY11 .............................................................................................................................. 15

4) Devils advocate: risks to our investment case...................................................................................................................... 175) Appendix 1................................................................................................................................................................................. 18

Background on CEO, Mr Murali Natrajan.......................................................................................................................... 186) Key company information ........................................................................................................................................................ 197) P&L, Balance Sheet and Cash Flow ........................................................................................................................................ 20

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Please see India Research Team list on page 22.


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3 BNP PARIBAS

Turnaround round the cornerWe initiate coverage on Development Credit Bank (DCB) with a BUY rating and

TP of INR60.00. We expect DCB to significantly improve its core operating

metrics over the next few years, driven by transformation on multiple counts. On

the asset side, DCB has cut down exposure to risky assets and diversified its

exposure across retail mortgage, mid-corporate, micro-SME, SME and priority-

sector categories. We expect these efforts to continue. On the liability side, weexpect DCBs reduced dependency on wholesale funding and strong CASA focus

to provide stability to margins. We also expect DCBs operational restructuring to

drive traction on fee income streams and improve cost efficiency. We expect

break even on P&L by 3QFY11 and improvement in adjusted RoEs to 9% by FY12.

Story so far: DCB is a private sector bank with 80 branches across India and a loan

book of INR35b for FY10 spread across corporate, retail and SME segments. DCB was

incorporated in 1930s and got listed in 2006. Its promoter Aga Khan Fund for

Economic Development (AKFED) holds a 23% stake at present. During 2006-08, the

bank focused heavily on unsecured personal-loan products, with exposure reaching as

high as 41% of total loan book. As this loan book growth ran ahead of low-cost current

and savings account deposit (CASA) accretion, DCB had to increasingly rely on higher

proportion of non-retail deposits. This started to put pressure on net interest margins(NIMs) and overall profitability. DCBs non-funded business also suffered due to severe

reduction in trade volumes. After the global meltdown in September 2008,

delinquencies shot up and wiped out operating profits for FY09 and FY10 as well. The

gross NPL ratio increased to 8.7% for FY10, compared to 1.6% for FY08. The spill-over

impact of writing off bad debts and running down the risky portfolio led to a loss of

INR881m in FY09 and INR785m in FY10.

What is changing now: Mr Murali Natrajan joined DCB as CEO in April 2009 (detailed

background in Appendix 1) and, along with the team, initiated the turnaround process.

Under his leadership, DCB is driving a three-pronged transformation strategy: 1) on the

asset side focus on asset book growth and reduction in exposure to risky assets, 2)

on the liability side reducing dependency on wholesale funding through CASA focus

and shoring up of tier-1 adequacy; and 3) on the operational front realigning the

process flow structure to drive cost efficiencies and improving traction on non-interestincome streams. We detail these initiatives below.

Exhibit 1: Unsecured Personal Loan Exposure Exhibit 2: Proportion Of CV loans

0

10

20

30

40

50

60

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Mar-11E

Mar-12E

0

5

10

15

20

25

Loan book (LHS)

Personal loans (LHS)Proportion of personal loans (RHS)

(INR b) (%)

0

10

20

30

40

50

60

FY07 FY08 FY09 FY10 FY11E FY12E

0

2

4

6

8

10

12

Loan book (LHS)CV loans (LHS)Proportion of CV loans (RHS)

(%)(INR b)

Sources: Dev Credit Bank; BNP Paribas estimates Sources: Dev Credit Bank; BNP Paribas estimates

Reduction in exposure to risky asset classes: DCB stopped disbursing unsecured

personal loans and has been running down the book since 2QFY09. Total unsecured

personal loan book currently stands at INR0.95b (2.7% of loan book) compared to

INR7b (17.1% of loan book) in FY08. Similarly, DCB put a squeeze on its commercial

vehicle (CV) loan disbursals over the last few quarters and the proportion of CV loans

reduced to 6% of loan book (INR2b) in FY10, from 10% in FY08. We expect the


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4 BNP PARIBAS

proportion of personal loan and CV book to reduce further to 0.2% and 2.1%,

respectively by FY12.

Diversification of asset book exposure: Since 3QFY10, DCB is back on growth

track, despite running down its personal and CV loan books. This has happened

through a shift in focus towards sectors such as mortgage, mid-corporate, micro-SME,

SME, agri and priority sector. The bank clocked loan book growth of 5.7% y-y for FY10

after reporting a decline of 19.5% in FY09. The bank also managed to increase theproportion of secured loans to above 76% for FY10. Some of the key differentiated

approaches being adopted by DCB are focusing on priority sector lending with

products like warehouse-based commodity financing, and providing bundled cash

management and trade finance products to under-serviced mid corporate, and SME

customers. We expect DCB to increase its loan book at a CAGR of 23% over FY10-12.

Exhibit 3: Loan Book Movement Exhibit 4: Movement In Loan Book Composition

0

2

4

6

8

10

12

14

16

18

20

FY08 FY09 FY10 FY11E FY12E

Retail

Corporate

SME

Rural & priority sector (AMRB)

(INR b)

17

10

3

1

0

11

11

6

4

2

10

11

5

5

4

4

8

12

14

16

4

14

17

18

18

17

25

25

26

45

28

32

33

33

8

0 20 40 60 80 100

FY08

FY09

FY10

FY11E

FY12E

Unsecured personal loans CV LoansOther retail Home loanSME & Micro-SME Rural & priority sector Corporate

(%)


Improvement in NPL trends: DCBs efforts on credit cost management have started to

yield results as the GNPL and NNPL ratios have started coming down over the last two

quarters. GNPLs have come off from a peak of 11.2% in 2QFY10 to 8.7% in FY10,

while NNPLs have come down to 3.1% for FY10 from 5% in 1QFY10. The loan-loss

provision (LLP) has also started to taper off in the past few quarters. Provision coverage

now stands at a healthy 66% (70% including technical write-offs). DCB has

aggressively written off non performing assets including a big ticket delinquent account.

Exhibit 5: Movement In NPL Ratios Exhibit 6: Movement In Loan Loss Provisions (LLPs)

0

2

4

6

8

10

12

14

FY07

FY08

1QFY09

2QFY09

3QFY09

FY09

1QFY10

2QFY10

3QFY10

FY10

FY11E

FY12E

40

50

60

70

80

Gross NPL ratio (LHS)

Net NPL ratio (LHS)

Provision coverage ratio (RHS)

(%) (%)

0

50

100

150

200

250

300

350

400

450

500


0

10

20

30

40

50

60

LLPs (LHS)

P&L provision as % of net revenues (RHS)(bps) (%)



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5 BNP PARIBAS

On the unsecured personal loan book of INR0.95b, DCB has net NPLs of just INR0.3b.

DCB also reported INR1.0b in recovery and upgradation of NPLs in FY10. We expect

NPL provisions on the P&L to come down to INR0.6b for FY11 and INR0.46b for FY12,

from INR1.14b in FY10. We expect LLPs to fall to 98bp for FY12, from 337bp in FY10.

Improving margin stability from reducing dependency on wholesale funding: On

the funding side, DCB has got its focus back on increasing CASA deposits and on

improving the mix of retail term deposits. Strong traction on CASA has helped maintainNIMs despite the reduction in loan yields (from a changing loan book mix) and marginal

increase in cost of term deposits (retail deposits are priced at a premium to wholesale).

While loan yields dropped 127bp y-y to 12.33% for FY10, a higher reduction of 199bp in

the cost of funds to 6.44% helped to keep the NIM flat at around 2.8%. Proportion of

wholesale deposits dropped from 47% in FY08 to 32% in FY09 and further to 18.5% for

FY10. CASA deposits increased 17.6% y-y for FY10 compared to a decline of 2% for

FY09. The CASA ratio came in at 35.3% for FY10 compared to 30.9% for FY09. Going

forward, DCB expects to keep its CASA ratio above 30% and the mix of wholesale

deposits below 30%. DCB is also working with rating agencies to improve its credit

rating. We expect DCB to clock a CASA ratio of 30.7% for FY12, factoring in our

estimate of 23% CAGR in loan book and no addition in branches over the next two

years. We expect NIMs to improve marginally to 2.8% for FY12, from 2.79% for FY10.

Exhibit 7: CASA Ratio And NIM Exhibit 8: Interest Rate Spreads

0

5

10

15

20

25

30

35

40

45

50

FY08

FY09

1QF10

2QF10

3QF10

FY10

FY11E

FY12E

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

CASA ratio (LHS)

Wholesale deposit ratio (LHS)

NIM (RHS)

(%) (%)

2

4

6

8

10

12

14

FY08 FY09 1QFY10 2QFY10 3QFY10 FY10

Loan yields Cost of funds Spreads*(%)

Sources: Dev Credit Bank; BNP Paribas estimates * Overall spreads would include the yield on investment book too

Sources: Dev Credit Bank; BNP Paribas

On the asset-liability management (ALM) front, DCB has managed to reduce the gap

between the blended loan and deposit duration. Almost the entire current loan portfolio

of DCB is either floating or subject to interest rate reset within a year. A smaller ALM

mismatch would add further stability to margins for DCB, although we expect margins to

remain under pressure in a rising rate environment.


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6 BNP PARIBAS

Exhibit 9: Loan And Deposit Durations Exhibit 10: Residual Maturity Of Asset and Liability

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Mar-08 Mar-09 Mar-10

Deposits Advances(Year)

0

10

20

30

40

5060

70

80

Mar-08 Mar-09 Mar-10

Liability with < 1-year maturity

Asset with 100% Risk Weights

(INRb)

Sources: Dev Credit Bank; BNP Paribas estimates Sources: Dev Credit Bank; BNP Paribas

Focus on non-interest income streams: DCB has renewed its focus on broad basing

its non-interest income streams, reporting an increase of 8.4% y-y in fees and other

operating income for FY10, compared to a 9% decline in FY09.


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7 BNP PARIBAS

In terms of third-party distribution income, DCB has tied up with Birla Sunlife (not listed)

for selling its life insurance products. DCB has also teamed up with ICRA (not listed);

for a wealth management product, which would generate backend fees for the bank.

Exhibit 13: Non Interest Income Exhibit 14: Fee And Other Operating Income

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6


Fee & other operating income

Treasury incomeForex income

(INR b)

0.0

0.5

1.0

1.5

2.0

2.5


0

10

20

30

40

50

60

70

80

90

NII (LHS)

Fee & other operating income (LHS)

Fee/op inc as % of NII (RHS)

(INR b) (%)


On the non-funded business, DCBs strength lies in its relation with micro-SME, SME,

mid-corporate and trade-related customers. In FY08-09, DCB centralized many of the

trade-finance-related products for a stronger control on exposure and better cost

efficiency. This adversely impacted its ability to address the local needs, and affected

cash management and trade finance income streams. However, since February 2010,

DCB has again decentralized its trade-finance channel and given branches more

flexibility to push customized products. We expect these initiatives to drive 13% CAGR

in fee income growth over FY10-12.

On the treasury and forex front, we expect a more muted income for FY11 as DCBs

counterparty limits have been squeezed over the last year and it will take some time for

it to get these limits back. We expect forex and treasury income to drop to INR111m for

FY11 from INR241m in FY10, and then get back to INR168m for FY12. Besides these,

there could be further upside to our estimates if recoveries from delinquent accounts

are stronger than our expectation. We are currently budgeting for INR90m-100m in

recoveries and upgrades in FY11 and FY12, compared to INR1b for FY10.

Improving cost efficiency: On the opex front, DCB has taken many initiatives to

improve its cost efficiency ratios. DCB has managed to trim its headcount to 1,500 from

2,235 in FY08. The bank has also managed to retain top management, despite cutting

down on bonuses and increments. We expect DCB to shore up its manpower going

forward. The bank has also centralized many of its vendors for driving economies of

scale. These efforts led to a cost reduction of INR0.4b for FY10, which we believe can

be sustained. As is evidenced in Exhibit 16, the average opex excluding staff costs perbranch has come down to INR25m for FY10 from INR31m in FY09. DCBs cost-to-

income ratio has stayed in the 75-80% range over the last two years on account of

shrinkage in net revenue caused by balance sheet cleansing. However, the cost to

average assets ratio has shown consistent improvement, from 3.7% in FY08 to 3.6% in

FY09 and 3.3% in FY10. Management expects to contain operating cost increases in

the 5-10% range over the next two years and it has set a target of a 55% cost-to-

income ratio by FY13. We expect 3% CAGR in operating costs over FY10-12. We also

expect the cost-to-income ratio to improve to 63.8% for FY12 compared to 80.6% for

FY10.


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8 BNP PARIBAS

Exhibit 15: Cost To Income And Cost To Asset Ratio Exhibit 16: Operating Cost Ratios

0

20

40

60

80

100

120

140

FY06 FY 07 FY08 FY09 FY10 FY 11E FY12E

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

Cost to income ratio (LHS)

Cost to average assets ratio (RHS)

(%) (%)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

FY06 FY07 FY08 FY09 FY10 FY11E FY12E

15

18

21

24

27

30

33

36

Employee cost per head (LHS)

Total operating cost per branch (RHS)

(INR m) (INR m)


We expect RoA to improve to 77bps by FY12. We expect transformation on multiple

counts (as detailed above) to improve adjusted ROEs for the bank to 9% and 13.5% for

FY12 and FY13. respectively.


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9 BNP PARIBAS

Strong earnings momentum post FY11We expect a loan book CAGR of 23% FY10-12 to drive net interest income (NII)

CAGR of 21% for DCB. We expect the drop in LLPs and the improvement in cost-

to-income ratio to aid an earnings turnaround in FY11 and drive strong earnings

momentum from FY12. Our EPS estimates for FY12 and FY13 are INR2.7 and

INR4.6, respectively. We are factoring in an equity dilution of 15% in FY11, as DCB

aims to cut down its promoter holding as per its roadmap with the RBI. We present asensitivity analysis of adjusted ROE and book value per share to the amount of capital

dilution. We also highlight IndusInd Banks turnaround with its subsequent re-rating and

compare its movement across key metrics with DCB.

Strong NII growth over FY10-12E: We expect DCB to increase both its loan book and

deposits at a CAGR of 23% respectively over FY10-12. We expect CASA deposits to

increase at 15% over this period, as we dont estimate any branch addition until FY12.

On the loan-book front, we expect 25% growth in corporate loans, 26% for SME and

priority sector loans and 16% in retail loans as DCB runs down the unsecured personal

loan and CV loan portfolio. We expect this to drive 21% NII CAGR over FY10-12.

Exhibit 17: Loan Book and Deposit Movement Exhibit 18: Loan Book Composition March 2010

0

10

20

30

40

50

60

70

80

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY11

E

FY12

E

(30)

(20)

(10)

0

10

20

30

40

50

60

Deposit (LHS) Loan book (LHS)Depos it growth (RHS) Loan growth (RHS)

(INR b) (y-y %)

Micro SME

7%

Retail

26%

Corporate

31%

SME

11%

Rural &

priority

sector

(AMRB)

25%

Sources: Dev Credit Bank; BNP Paribas estimates Sources: Dev Credit Bank; BNP Paribas

Exhibit 19: Retail Loan Book Break Down Mar-10 Exhibit 20: Funded Exposure Break Down Mar-10

Personal

loans

11%

Home loan

46%

Auto loans

2%

Commercial

vehicles

22%

Loans

against FD/

CE & other

retail

19%

Gems and

textiles

3%

Retail loans

20%

Infrastructure

& telecom

5%

Pharma &

chemical

3%

Metal &

mining

2%

NBFC

6%

Others

27%

Cement &

construction

5%

Trade &

transport

9%

Food and agri

linked

18%

Engineering &

electronics

2%

Sources: Dev Credit Bank; BNP Paribas Sources: Dev Credit Bank; BNP Paribas


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10 BNP PARIBAS

Maintain NIMs over FY10-12: We expect marginal contraction in NIMs on account of:

1) reduction in loan yields owing to reduction in the mix of high yielding unsecured

loans, 2) higher proportion of retail term deposits (that are priced at a slight premium to

wholesale deposits); and 3) marginal drop in CASA ratio to 30.6% for FY12 from 35.4%

in FY10, as the rate of loan-book growth outpaces CASA accretion. However, marginal

expansion in the loan-to-deposit ratio (LDR) from potential equity-capital infusion and

higher credit offtake would marginally offset the contraction. Also, DCBs strongfranchise in the priority sector (like warehouse financing) and micro SMEs should help it

to maintain loan yields. DCB earns yields of 10-12% on its priority sector book, while it

generates yields of 13.0-13.5% on the micro-SME book. Even on larger SMEs and mid-

corporate book, DCB currently gets a 10-12% yield. We expect NIMs to pick up again in

FY12 to 2.8% after dropping to 2.65% for FY11. Stronger-than-expected traction on

CASA deposits could add potential upside to our NIM estimates.

Exhibit 21: NIM And CASA Movement Exhibit 22: Credit Disbursal And GNPL Accretion

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.1


15

20

25

30

35

40

NIM (LHS) CASA ratio (RHS)(%) (%)

0

10

20

30

40

50

60

70


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Loan disbursements (LHS)

Personal + CV loan book (LHS)

Gross NPL accretion (RHS)

(INR b) (INR b)


Strong traction on fee income: We expect fee income to increase at a 13% CAGR

over the next two years, driven by traction on third-party distribution fees and a revival

in trade finance and transaction banking income streams. We expect treasury and forex

income to stay muted for FY11 and FY12. We expect overall net revenues to increase

at a CAGR of 15.3% over FY10-12.

Lower opex and LLPs: We expect 3% CAGR in operating expenses to help drive pre-

provisioning profit CAGR of 57.4% over FY10-12. Furthermore, we expect LLPs to

taper off sharply (Exhibits 5, 6, and 22), helped by a reduction in unsecured loan book,

aggressive write-off taken in the books, and increased focus on recoveries. We expect

these to add to strong momentum on net profits.

Tax benefits: DCB is carrying forward tax losses of INR3.4b on its books, which should

help it offset any tax provisions over the next three years.

ROE expansion on expanded capital base: We are factoring in capital raising of

INR1.4b in FY11, amounting to dilution of 15%. However, we expect DCB to report a

strong improvement in adjusted ROE on the assumed expanded capital base. We

estimate adjusted book value per share and EPS at INR31.60 and INR2.71 respectively

for FY12. We expect adjusted ROEs to improve to 9% for FY12 from -14.8% in FY10,

and ROAs to 0.77% for FY12.


11/24


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12 BNP PARIBAS

Comparison with IndusInd BankWe highlight the turnaround path of IndusInd Bank (IIB IN) across six key operating

metrics and its subsequent re-rating and we compare DCBs progress across those

lines.

Exhibit 26: Comparison With IndusInd

Year-end 31 Mar (%) 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 2011E 2012E

IndusInd Bank

ROA 0.3 0.6 0.7 0.8 1.3 1.1 1.1 1.2 1.2

Adjusted ROE* 6.4 10.3 13.5 15.0 25.7 18.5 17.7 19.4 18.5

Net interest margin 1.7 1.8 2.0 2.5 2.6 2.9 2.9 3.2 3.5

Cost to Income ratio 70.9 65.5 58.3 51.8 48.8 54.4 50.9 50.5 50.1

Net NPL ratio 2.4 2.2 1.3 1.1 1.0 1.0 0.7 0.5 0.3

Revenue per employee (INR m) 2.1 2.2 2.5 1.9 3.0 2.9 2.9 3.0 3.0

P/ABV 1-Yr forward 1.2 1.2 0.8 0.6 1.5 1.9 2.2 2.6 2.9

Development Credit Bank

ROA 0.2 (0.1) (0.3) (5.2) (2.4) (1.2) (1.3) (0.6) 0.1 0.8

Adjusted ROE* 2.2 (1.1) (3.9) (47.0) (24.9) (13.2) (13.5) (5.9) 0.6 9.0

Net interest margin 2.6 2.8 2.5 2.6 3.3 2.6 2.8

Cost to Income ratio 71.3 77.4 70.8 88.0 90.2 76.2 86.6 71.5 74.6 63.8

Net NPL ratio 1.5 1.3 2.0 3.9 5.0 4.7 4.3 3.1 2.0 1.3

Revenue per employee (INR m) 1.6 1.6 1.5 1.3 1.2 1.5 1.5 1.8 1.7 1.9

P/ABV 1-year forward 1.6 1.3 0.8 0.7 1.4 1.5 1.2 1.4 1.9

Sources: Companies data; BNP Paribas estimates

As is evident in the exhibit above, DCB is about seven to eight quarters behind IndusInd

in its turnaround cycle. DCB is trading at 1.5x on a rolling 1-year forward adjusted book

value. We expect turnaround across core operating metrics to drive a re-rating for DCB

on similar lines as we saw for IndusInd Bank.


13/24


13 BNP PARIBAS

Sensitivity analysisWe present a sensitivity analysis of DCBs ROE and book value per share to quantum

and pricing of the potential equity raising.

Our base case is for an equity dilution of 15% in FY11, to account for the planned

reduction in promoter stake to 10% by FY14, from 23% at present. We are factoring in

equity issuance of INR1.4b in 2HFY11 at INR40 per share, based on the stocks three-

month trading average.

Exhibit 27: Sensitivity Analysis Of DCBs Dilution To RoE And ABV Per Share

Adjusted ROE FY12E Equity dilution in FY11 and FY12

Price (INR) 5% 10% 15% 20%

30 10.0% 9.6% 9.2% 9.0%

40 9.8% 9.4% 9.0% 8.7%

50 9.8% 9.3% 8.7% 8.4%

60 9.7% 9.1% 8.5% 8.2%

ABVPS FY12E (INR) Equity dilution in FY11 and FY12

Price (INR) 5% 10% 15% 20%

30 29.8 29.9 30.0 30.1

40 30.3 31.0 31.6 32.3

50 30.8 32.0 33.1 34.4

60 31.3 33.1 34.7 36.5

P/ABVFY12E at CMP (x) Equity dilution in FY11 and FY12

Price (INR) 5% 10% 15% 20%

30 1.52 1.51 1.50 1.50

40 1.49 1.46 1.43 1.40

50 1.47 1.41 1.36 1.31

60 1.44 1.36 1.30 1.24

Source: BNP Paribas estimates


14/24


14 BNP PARIBAS

Valuation: BUY with TP of INR60.00We expect transformation on multiple counts to drive strong improvement in

ROE over the next two years for DCB. This coupled with a 23% CAGR in loan-

book growth. Should help achieve a break even by 3QFY11 and drive strong

earnings momentum post FY11. We expect net revenue to increase at 20% CAGR

over FY10-12 and adjusted ROE to clock 9% for FY12. DCB is trading at 1.4x FY12E

ABV, well below its historical mean of 2.0x 1-year forward ABV. We expect themanagement under a new leadership to drive an impressive turnaround over the next

two years. We expect DCB to re-rate along with increasing visibility on improvement in

key metrics. At our TP the implied P/FY12E ABV is 1.9x. We recommend BUY with a

12-18-month TP of INR60.00.

We have come to our target price of INR60.00 using a three-stage residual-income

valuation method that uses the following assumptions:

1 We estimate loan book growth of 21.7% and 24.3% for FY11 and FY12,

respectively. For FY11, we expect 25% growth in corporate loans, 26% increase in

SME/micro-SME lending and 25% increase in priority-sector loans.

2 We expect CASA deposits to increase 14.5% in FY11 and 15% in FY12. We

expect the bank to maintain a CASA ratio of above 30% over FY10-12, in line withmanagement guidance. We are not factoring in any branch addition over the next

two years.

3 We expect fee income CAGR of 13% for FY10-12, driven by a 20% and 11%

increase in third-party distribution and transaction banking/trade finance income

respectively.

4 We expect NIMs to contract marginally by 14bp, from 2.79% in FY10 to 2.65% in

FY11, and then improve to 2.8% by FY12. Management has guided towards a NIM

range of 2.5-2.7% for FY11.

5 On the NPL front, we expect LLPs to taper off to 149bp and 98bp for FY11 and

FY12 respectively, from 337bp for FY10. We expect the gross NPL ratio to decline

to 6.9% in FY11 and 5.3% in FY12, from 8.7% in FY10. Our net NPL ratio estimate

for FY11 is 2.0%.

6 On the capital adequacy front, we are factoring in INR1.4b of equity raising at

INR40 per share in 2HFY11. We expect overall capital adequacy and tier-one ratio

to reach 15.5% and 12.5% respectively for FY11.

7 We expect the banks cost-to-income to decline to 74.6% for FY11 and 63.8% for

FY12, from 80.6% in FY10.

8 We expect a pro forma diluted EPS of -INR0.3 for FY11 and +INR2.9 for FY12.

At 1.4x our FY12E ABV and 16.6x our FY12E diluted EPS, we believe DCB offers an

interesting entry point into the next turnaround story in the sector. Our target price of

INR60.00 implies 1.9x our FY12E adjusted BV (average ROE of 9% for FY12E) and

22.1x our FY12E EPS.

Key catalysts: Any of these could trigger a re-rating for the stock in the near to medium

term: A sharp reduction in LLPs in-line with guidance, rating upgrade from rating

agencies, continued drop in operating cost ratios, and a strong uptick in credit offtake.

Key risks: Risks to our thesis are key man risk or the dependence on a small

leadership team, slower-than-expected credit offtake, and a sharp spike in short-term

rates among others.


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15 BNP PARIBAS

Residual income valuationWe have built in the following assumptions into our three-stage residual-income model:

We expect DCB to post a steady 19% CAGR for its average interest-earnings

assets over FY10-13, compared to an industry average of 18-20% on our

forecasts. We expect this to be followed by a CAGR of 17% in FY13-20 and a

terminal growth rate of 4% beyond that.

We have modelled for ROE improvement to 13.5% by FY13 followed by average

ROE of 16.4% for FY13-20 and a 17% terminal value ROE. Our discount rates

range from 14.5% (current cost of equity) for FY09-13, 12% for FY13-20 and 10%

terminal rate.

Our book value estimates factor in equity dilution of 15% in FY11.

We are not factoring in any dividend payouts until FY13.

Exhibit 28: Residual Income Valuation

Year-end 31 Mar (INR m) 2010E 2011E 2012 E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Terminal

Net profit (784) 36 637 1,070 1,341 1,621 1,935 2,292 2,658 3,030 3,364 3,511

Dividend payout (including dividend tax) - - - - 284 340 536 778 1,064 1,377 2,464

Beginning book value 5,290 5,347 6,783 7,420 8,490 9,831 11,168 12,764 14,519 16,399 18,366 20,352

Required return 768 777 985 1,078 1,019 1,180 1,340 1,532 1,742 1,968 2,204 2,035

Residual income (1,553) (741) (348) (7) 322 441 595 760 916 1,062 1,160 24,589

Discounted residual income (1,553) (647) (265) (5) 192 234 282 321 346 358 349 6,732

Residual income per share (3) (1) (0) 1 1 1 1 1 2 1 29

Sum of future residual Income (INR/share) 33

Book value FY10E (INR/share) 27

Value/share (INR) 60

RFR (%) 7.8 7.0 6.0

BETA 1.1 1.0 1.0

ERP (equity risk premium) (%) 6.0 5.0 4.0Cost of equity (%) 14.5 14.5 14.5 14.5 12.0 12.0 12.0 12.0 12.0 12.0 12.0 10.0

Source: BNP Paribas estimates

Recommendation: Look beyond FY11Although we expect DCB to report a marginal profit for FY11, we expect sharp

improvement in all operating metrics going forward. We believe DCB is driving a strong

turnaround on multiple fronts and expect ROEs to move up sharply once the LLPs drop

off and loan book growth picks up.

Exhibit 30 below compares the FY12E P/ABV metrics across our banking coverage

universe. We would urge investors to look beyond FY11 estimates, as we believe

DCBs turnaround strategy will begin to bear fruit in terms of a superior growth profile

and stronger profitability.


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16 BNP PARIBAS

Exhibit 29: 1-Year Forward P/ABV For DCB Exhibit 30: FY12E P/ABV vs ROE For Coverage Universe

0

20

40

60

80

100120

140

160

Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10

4.0x

2.0x

3.0x

(INR)

1.0x

ICICIBC

HOLD

HDFCB

BUY

SBIN

HOLD

IIB

BUY

BOI

HOLD

AXSBHOLD

PN B

HOLD

UNBK

BUY

BOB

BUY

YES

BUYDCB

BUY

0.5

0.8

1.1

1.4

1.7

2.0

2.3

2.62.9

3.2

3.5

3.8

6 8 10 12 14 16 18 20 22 24 26 28 30

Average RoE FY12E (%)

CMP/FY12E ABV

Sources: DataStream; BNP Paribas estimates Sources: DataStream; BNP Paribas estimates

Exhibit 31: Peer Valuation

BBG P/ABV P/E Adjusted ROE

Company code FY11E FY12E FY11E FY12E FY11E FY12E

(x) (x) (x) (x) (%) (%)

Development Credit Bank DEVB IN 1.6 1.4 NM 16.7 0.6 9.0

Indian public sector banks

State Bank of India* SBIN IN 1.5 1.3 12.4 10.1 12.5 13.6

Bank of Baroda BOB IN 1.6 1.4 7.9 6.6 21.9 22.0

Bank of India BOI IN 1.4 1.2 8.4 5.8 17.3 21.5

Union Bank of India UNBK IN 1.5 1.2 7.5 5.7 22.0 23.8

Punjab National Bank PNB IN 1.8 1.5 8.2 6.1 23.4 25.9

Indian private sector banks

ICICI Bank* ICICIBC IN 1.3 1.2 14.5 12.2 8.3 9.5

Yes Bank YES IN 2.6 2.2 15.2 11.1 18.4 21.3

Axis Bank AXSB IN 2.8 2.4 15.0 11.7 20.4 22.3

HDFC Bank HDFCB IN 3.7 3.2 22.7 19.7 17.4 17.6

IndusInd Bank IIB IN 3.1 2.7 19.1 15.6 18.5 18.8

* For Core Banking BusinessPrices as at 7 July 2010Source: BNP Paribas estimates


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17 BNP PARIBAS

Devils advocate: risks to our investment case We expect corporate capex and retail-loan demand to pick up in 2HFY10 and

FY11. However, increasing inflationary pressures leading to earlier-than-expected

and more stringent monetary policy tightening from the RBI could hamper growth.

In the event of the macro-economic scenario worsening again, there is a strong

possibility of restructured loans turning bad and resulting in higher-than-expected

NPL provisions.

Key man risk the investment thesis for the bank is sensitive to changes in the top

management team.

Sudden spike in short-term interest rates could have a significant downside impact

on our earning estimates.

Slower-than-expected ramp-up in branch network or CASA deposits could have a

significant impact on NIMs and hence the return ratios.

Higher than expected dilution requirements could impact the return ratios for the

bank in near to medium term.


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18 BNP PARIBAS

Appendix 1

Background on CEO, Mr Murali NatrajanMr Natrajan joined DCB in April 2009. Prior to this, he was the global head for SME

banking at the Indian operations of Standard Chartered Bank (StanChart).

Mr Natrajan has been a consumer banking professional with over 20 years ofexperience in India, Singapore, Hong Kong, Korea and Indonesia. Mr. Natrajan is a

fellow member of the Institute of Chartered Accountants of India. He started his career

with American Express TRS in India where he worked for five years before joining

Citibank in 1989. In Citibank, he spent 14 years and worked across functions including

his role as Director of Cards Business in Indonesia and Hong Kong. He joined

StanChart in October 2002 as General Manager for Mortgage & Auto Business for

Southeast Asia. In November 2004, he took over as the head of consumer banking for

India and Nepal with StanChart and in June 2008 he moved to Singapore as Global

Head for SME banking in StanChart.


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19 BNP PARIBAS

Key company informationExhibit 32: Top Management Exhibit 33: Revenue Breakdown FY10

Nasser Munjee, Chairman- since Aug 2005. He has over 30 years

of banking experience across boards of companies like ICICI Bank

and IDFC. Currently, he sits on 15 Corporate Boards in India

including HDFC, Tata Motors, Tata Chemicals and ABB India.

Murali Natrajan, MD/CEO since May 2009. Prior to this, he was

the global head for SME banking in Standard Chartered Bank

(StanChart). Has over 20 years of experience across consumer

banking positions with Citibank, Standard Chartered and American

Express TRS.

Bharat Sampat, Exec VP and CFO since Sep 2008. Prior to this

he was Head of Finance Shared Services at Royal Bank of Scotland.

Has over 22 years of experience in Manufacturing, Banking and

Finance Shared Services industry.

Forex

income

3%

Net interest

income

55%

Fee & other

operating

income

33%

Treasury

income

9%

Source: Dev Credit Bank Sources: Dev Credit Bank; BNP Paribas

Exhibit 34: Zone-wise Branch Presence In India Exhibit 35: Shareholding Pattern March 2010

North

10%

South

19%

West

67%

East

4%

Promoters

23%

FIIs

3%

Domestic

financial

institutions

8%

Other

2%Corporate

bodies

18%

Retail

investors

37%

Other

foreign

holding

9%

Sources: Dev Credit Bank; BNP Paribas Sources: Dev Credit Bank; BNP Paribas

Exhibit 36: Company History Exhibit 37: Top Holders As Of March 2010

1930 Inception as a co-operative bank

1988 Acquired scheduled status from Reserve Bank of India (RBI)

1995 Conversion of Development Co-operative Bank into DCB

1995 Acquired forex license and became authorized dealer

2004 Classified as a new generation private sector bank by RBI

2006 PE investment of INR0.5b by HDFC and Khattar Holdings

2006 Came up with IPO issue - raised INR1.9b

2007 Preferential allotment of INR2.8b in August

2009 Raised INR0.7b through tier-2 debt issue in August

2009 Raised INR0.8b in tier-1 capital through QIP issue in

November

AKFED & associates 23.1

Al Bateen Investment Co L.L.C 3.7

Tata Capital Limited 3.3

Bajaj Allianz Life Insurance Co Ltd 2.9

ICICI Prudential Life Insurance Co Ltd 2.9

DCB Investments Ltd 2.7

Birla Sun Life Insurance Co Ltd 2.0

HDFC Ltd 2.0

Khattar Holdings Private Ltd 1.5

Edelweiss Securities Ltd 1.5

India Capital Opportunities 1 Ltd 1.4

Source: Dev Credit Bank Sources: Dev Credit Bank; BNP Paribas estimates


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20 BNP PARIBAS

F I N A N C I A L S T A T E M E N T S

Dev Credit Bank

Profit and Loss (INR m)Year Ending Mar 2009A 2010A 2011E 2012E 2013E

Interest income 6,452 4,594 5,091 6,355 7,752

Interest expense (4,480) (3,174) (3,480) (4,288) (5,211)Net interest income 1,973 1,420 1,611 2,067 2,541Net fees & commission 768 832 948 1,062 1,308Foreign exchange trading income 224 63 76 95 119Securities trading income 20 178 36 84 49Dividend income 0 0 0 0 0Other income 189 (2) 0 0 0Non interest income 1,201 1,071 1,060 1,242 1,477Total income 3,173 2,491 2,670 3,309 4,018Staff costs (1,044) (881) (816) (893) (949)Other operating costs (1,376) (1,128) (1,177) (1,220) (1,424)Operating costs (2,420) (2,008) (1,993) (2,112) (2,373)Pre provision operating profit 753 483 677 1,196 1,645Provisions for bad and doubtful debts (1,619) (1,135) (570) (464) (433)Other provisions 0 (75) (72) (95) (118)Operating profit (866) (727) 36 637 1,094

Recurring non operating income 0 0 0 0 0Associates 0 0 0 0 0Goodwill amortization 0 0 0 0 0Non recurring items 0 0 0 0 0Profit before tax (866) (727) 36 637 1,094Tax (15) (57) 0 0 0Profit after tax (881) (784) 36 637 1,094Minority interests 0 0 0 0 0Preferred dividends 0 0 0 0 0Other items 0 0 0 0 0Reported net profit (881) (784) 36 637 1,094Non recurring items & goodwill (net) 0 0 0 0 0Recurring net profit (881) (784) 36 637 1,094

Per share (INR)

Recurring EPS * (5.05) (4.25) 0.16 2.71 4.66

Reported EPS (5.05) (4.25) 0.16 2.71 4.66DPS 0.00 0.00 0.00 0.00 0.00

Growth

Net interest income (%) 13.4 (28.0) 13.4 28.3 22.9Non interest income (%) (30.9) (10.8) (1.1) 17.2 19.0Pre provision operating profit (%) (31.3) (35.9) 40.3 76.6 37.5Operating profit (%) (339.6) (16.0) (104.9) 1,675.8 71.7Reported net profit (%) (329.8) (11.0) (104.6) 1,675.8 71.7Recurring EPS (%) (323.6) (15.9) (103.9) 1,543.6 71.7Reported EPS (%) (323.6) (15.9) (103.9) 1,543.6 71.7

Income breakdown

Net interest income (%) 62.2 57.0 60.3 62.5 63.2Net fees &commission (%) 24.2 33.4 35.5 32.1 32.6Foreign exchange trading income (%) 7.1 2.5 2.9 2.9 3.0

Securities trading income (%) 0.6 7.1 1.3 2.5 1.2Dividend income (%) 0.0 0.0 0.0 0.0 0.0Other income (%) 6.0 (0.1) 0.0 0.0 0.0

Operating performance

Gross interest yield (%) 9.35 9.03 8.37 8.60 8.60Cost of funds (%) 7.62 6.11 5.96 6.02 5.93Net interest spread (%) 1.74 2.91 2.41 2.59 2.67Net interest margin (%) 2.86 2.79 2.65 2.80 2.82Cost/income (%) 76.3 80.6 74.6 63.8 59.1Cost/assets (%) 3.58 3.32 2.94 2.56 2.36Effective tax rate (%) - - 0.0 0.0 0.0Dividend payout on recurring profit (%) - - 0.0 0.0 0.0ROE (%) (14.3) (13.1) 0.5 8.2 12.7ROE COE (%) (32.5) (31.3) (17.7) (10.0) (5.5)ROA (%) (1.30) (1.30) 0.05 0.77 1.09

RORWA (%) (3.92) (1.76) 0.07 1.07 1.51* Pre exceptional, pre-goodwill and fully diluted

Sources: Dev Credit Bank; BNP Paribas estimates

We expect 21% NIICAGR on the back of23% loan book CAGRover FY10-12

We expect a sharp drop inLLPs to drive turnaroundin profitability

Adjusted RoE on theadjusted book to be 9%for FY12


21/24


21 BNP PARIBAS

Dev Credit Bank

Balance Sheet (INR m)Year Ending Mar 2009A 2010A 2011E 2012E 2013E

Gross customer loans 34,370 36,713 44,288 54,507 67,611Total provisions (1,630) (2,116) (2,199) (2,207) (2,435)Interest in suspense 0 0 0 0 0

Net customer loans 32,740 34,597 42,088 52,300 65,176Bank loans 3,733 410 883 1,092 1,339Government securities 12,675 15,790 18,474 21,245 24,432Trading securities 0 0 0 0 0Investment securities 3,542 4,390 5,477 6,837 8,536Cash & equivalents 2,869 2,914 3,778 4,807 6,097Other interest earning assets 0 0 0 0 0Tangible fixed assets 1,489 1,358 1,358 1,358 1,658Associates 0 0 0 0 0Goodwill 0 0 0 0 0Other intangible assets 95 78 78 78 78Other assets 2,287 1,831 2,175 2,687 3,295Total assets 59,430 61,367 74,310 90,403 110,610Customer deposits 46,469 47,873 58,371 72,627 90,429Bank deposits 0 0 0 0 0Other interest bearing liabilities 4,455 5,035 5,535 6,035 6,535

Non interest bearing liabilities 2,523 2,447 2,957 3,657 4,492Hybrid Capital 0 0 0 0 0Total liabilities 53,447 55,356 66,863 82,319 101,455Share capital 1,769 2,021 2,371 2,371 2,371Reserves 4,214 3,990 5,076 5,713 6,783Total equity 5,983 6,011 7,447 8,084 9,155Minority interests 0 0 0 0 0Total liabilities & equity 59,430 61,367 74,310 90,403 110,610

Supplementary items

Risk weighted assets (RWA) 44,936 44,265 53,602 65,210 79,786Average interest earning assets 68,970 50,890 60,808 73,890 90,093Average interest bearing liabilities 58,800 51,916 58,407 71,284 87,813Tier 1 capital 5,165 5,282 6,718 7,355 8,425Total capital 5,977 6,562 8,303 9,265 10,679Gross non performing loans (NPL) 2,900 3,192 3,051 2,893 3,184

Per share (INR)Book value per share 34.33 30.06 31.69 34.40 38.96Tangible book value per share 30.35 26.74 28.86 31.58 36.13

Growth

Gross customer loans (%) (16.3) 6.8 20.6 23.1 24.0Average interest earning assets (%) 20.2 (26.2) 19.5 21.5 21.9Total assets (%) (21.6) 3.3 21.1 21.7 22.4Risk weighted assets (%) 449,360,90 (1.5) 21.1 21.7 22.4Customer deposits (%) (23.5) 3.0 21.9 24.4 24.5

Leverage & capital measures

Customer loans/deposits (%) 70.5 72.3 72.1 72.0 72.1Equity/assets (%) 10.1 9.8 10.0 8.9 8.3Tangible equity/assets (%) 9.9 9.7 9.9 8.9 8.2RWA/assets (%) 75.6 72.1 72.1 72.1 72.1Tier 1 CAR (%) 11.5 11.9 12.5 11.3 10.6

Total CAR (%) 13.3 14.8 15.5 14.2 13.4Asset quality

Change in NPL (%) 357.2 10.1 (4.4) (5.2) 10.1NPL/gross loans (%) 8.4 8.7 6.9 5.3 4.7Total provisions/gross loans (%) 4.7 5.8 5.0 4.0 3.6Total provisions/NPL (%) 56.2 66.3 72.1 76.3 76.5

Valuation 2009A 2010A 2011E 2012E 2013E

Recurring P/E (x) * (8.9) (10.6) 272.5 16.6 9.7Recurring P/E @ target price (x) * (11.9) (14.1) 363.7 22.1 12.9Reported P/E (x) (8.9) (10.6) 272.5 16.6 9.7Dividend yield (%) 0.0 0.0 0.0 0.0 0.0Price/book (x) 1.3 1.5 1.4 1.3 1.2Price/tangible book (x) 1.5 1.7 1.6 1.4 1.2Price/tangible book @ target price (x) 2.0 2.2 2.1 1.9 1.7* Pre exceptional, pre-goodwill and fully diluted

Sources: Dev Credit Bank; BNP Paribas estimates

We expect 23% loan bookCAGR over FY10-12driven by mortgage,micro-SME, SME, mid-corporate and agri-linkedbook

Factoring in equity

issuance of INR1.4b inFY11


22/24


22 BNP PARIBAS

India Research Team

MANISHI RAYCHAUDHURIHead of India ResearchBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

GAUTAM MEHTAAssociateBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

KARAN GUPTAMetals & MiningBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

VISHAL SHARMA, CFAInfrastructure - E&CBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

SHASHANK ABHISHEIKInfrastructure - E&C (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

AVNEESH SUKHIJAReal Estate (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

LAKSHMINARAYANA GANTICapital Goods/CementBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

CHARANJIT SINGHCapital Goods/Cement (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

GIRISH NAIRUtilitiesBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

AMIT SHAHOil & GasBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

SRIRAM RAMESHOil & Gas (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

ABHIRAM ELESWARAPUTech - ITBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

AVINASH SINGHTech - IT (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

SAMEER NARINGREKARTech - TelecomBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

KUNAL VORA, CFATech - Telecom (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

VIJAY SARATHI, CFAFinancial ServicesBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

ABHISHEK BHATTACHARYAFinancial ServicesBNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]

JOSEPH GEORGEConsumerBNP Paribas Securities India Pvt Ltd+91 22 6628 2452

[email protected]

MANISH A GUPTAConsumer (Associate)BNP Paribas Securities India Pvt Ltd+91 22 6628 [email protected]


23/24


23 BNP PARIBAS

D I S C L A I M E R S & D I S C L O S U R E S

ANALYST(S)

Abhishek Bhattacharya, BNP Paribas Securities India Pvt Ltd, +91 22 6628 2411,

[email protected].

Vijay Sarathi, CFA, BNP Paribas Securities India Pvt Ltd, +91 22 6628 2412, [email protected] report was produced by a member company of the BNP Paribas Group (Group)

1. This report is for the use of intended recipients only and

may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting thisreport, the recipient agrees to be bound by the terms and limitations set out herein.

The information contained in this report has been obtained from public sources believed to be reliable and the opinions contained herein areexpressions of belief based on such information. No representation or warranty, express or implied, is made that such information or opinions isaccurate, complete or verified and it should not be relied upon as such. This report does not constitute a prospectus or other offering document oran offer or solicitation to buy or sell any securities or other investments. Information and opinions contained in this report are published for referenceof the recipients and are not to be relied upon as authoritative or without the recipients own independent verification or taken in substitution for theexercise of judgement by the recipient. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject tochange without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in thisreport. Any reference to past performance should not be taken as an indication of future performance. No member company of the Group acceptsany liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report.

The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) withregard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is,or will be, directly or indirectly, related to the specific recommendation or views expressed herein.

This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whosebusiness involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, asubsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities, advising on securities

and providing automated trading services. This report is being distributed in the United Kingdom by BNP Paribas London Branch to persons whoare not private customers as defined under U.K. securities regulations. BNP Paribas London Branch, a branch of BNP Paribas, is regulated by theFinancial Services Authority for the conduct of its designated investment business in the U.K. This report may be distributed in the United States byBNP PARIBAS SECURITIES ASIA or by BNP Paribas Securities Corp.

Where this report has been distributed by BNP PARIBAS SECURITIES ASIA it is intended for distribution in the United States only to majorinstitutional investors (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for theuse of any person or entity that is not a major institutional investor. Where this report has been distributed by BNP Paribas Securities Corp, a U.S.broker dealer, it will have been reviewed by a FINRA S16 qualified registered supervisory analyst or a S24 qualified and authorized person, inaccordance with FINRA requirements concerning third party affiliated research.

All U.S. institutional investors receiving this report should effect transactions in securities discussed in the report through BNP Paribas SecuritiesCorp. BNP Paribas Securities Corp. is a member of the New York Stock Exchange, the Financial Industry Regulatory Authority and the SecuritiesInvestor Protection Corporation. Reproduction, distribution or publication of this report in any other places or to persons to whom such distribution orpublication is not permitted under the applicable laws or regulations of such places is strictly prohibited.

Information on Taiwan listed stocks is distributed in Taiwan by BNP Paribas Securities (Taiwan) Co., Ltd.

Distribution or publication of this report in any other places to persons which are not permitted under the applicable laws or regulations of suchplaces is strictly prohibited.1 No portion of this report was prepared by BNP Paribas Securities Corp personnel.

Disclosure and Analyst Certi f ication

BNP Paribas represents that:

Within the next three months, BNPP or its affiliates may receive or seek compensation in connection with an investment banking relationship withone or more of the companies referenced herein.

The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) withregard to any and all of the subject securities and companies mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, orwill be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) BNPP is not aware of any other actual ormaterial conflicts of interest concerning any of the subject securities and companies referenced herein as of the time of publication of the researchreport.

Recommendation structureAll share prices are as at market close on 7 July 2010 unless otherwise stated. Stock recommendations are based on absolute upside (downside),which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% ormore, the recommendation is REDUCE. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. In addition, wehave key buy and key sell lists in each market, which are our most commercial and/or actionable BUY and REDUCE calls and are limited to at most

five key buys and five key sells in each market at any point in time.Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause atemporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the marketwill reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases,therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Rating distribution (as at 6 July 2010)Out of 466 rated stocks in the BNP Paribas coverage universe, 315 have BUY ratings, 103 are rated HOLD and 48 are rated REDUCE. Withinthese rating categories, 2.54% of the BUY-rated companies either currently are or have been BNP Paribas clients in the past 12 months, 1.94% ofthe HOLD-rated companies are or have been clients in the past 12 months, and 6.25% of the REDUCE-rated companies are or have been clients inthe past 12 months.

Should you require additional information please contact the relevant BNP Paribas research team or the author(s) of this report.

2010 BNP Paribas Group


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HONG KONG

BNP Paribas Securities (Asia) Ltd63/F, Two International Finance Centre8 Finance Street, CentralHong Kong SARChinaTel (852) 2825 1888Fax (852) 2845 9411

BEIJING

Beijing Representative OfficeUnit 1618, South TowerBeijing Kerry Centre1 Guang Hua Road, Chao Yang DistrictBeijing 100020, ChinaTel (86 10) 6561 1118Fax (86 10) 6561 2228

SHANGHAI BANGKOK

(In cooperation with BNP Paribas)Thanachart Securities Public Co Ltd28/F, Unit A1 Siam Tower Building989 Rama 1 Road, PatumwanBangkok 10330ThailandTel (66 2) 617 4900Fax (66 2) 658 1470

KUALA LUMPUR

BNP Paribas Capital (Malaysia) Sdn. Bhd.Suite 21.03 Level 21 Menara Dion27 Jalan Sultan Ismail50250 Kuala LumpurMalaysiaTel (60 3) 2050 9928Fax (60 3) 2070 0298

SEOUL

BNP Paribas Securities Korea Co Ltd22/F, Taepyeongno Building310 Taepyeongno 2-gaJung-gu, Seoul 100-767KoreaTel (82 2) 2125 0500Fax (82 2) 2125 0593

SINGAPORE

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TAIPEI

BNP Paribas Securities(Taiwan) Co Ltd

NEW YORK

BNP ParibasThe Equitable Tower787 Seventh AvenueNew YorkNY 10019, USATel (1 212) 841 3800Fax (1 212) 841 3810

BASEL

BNP ParibasAeschengraben 26CH 4002 BaselSwitzerlandTel (41 61) 276 5555Fax (41 61) 276 5514

FRANKFURT

BNP ParibasMainzer Landstrasse 1660325 FrankfurtGermanyTel (49 69) 7193 6637Fax (49 69) 7193 2520

GENEVA

BNP Paribas2 Place de Hollande1211 Geneva 11SwitzerlandTel (41 22) 787 7377Fax (41 22) 787 8020

LONDON

BNP Paribas10 Harewood AvenueLondon NW1 6AAUKTel (44 20) 7595 2000Fax (44 20) 7595 2555

LYON

BNP Paribas Equities FranceSocit de Bourse3 rue de L Arbre Sec69001 LyonFranceTel (33 4) 7210 4001Fax (33 4) 7210 4029

MADRID

BNP Paribas SA, sucursal en EspanaHermanos Becquer 3PO Box 5078428006 MadridSpainTel (34 91) 745 9000Fax (34 91) 745 8888

MILAN

BNP Paribas Equities Italia SIM SpAPiazza San Fedele, 220121 MilanItalyTel (39 02) 72 47 1Fax (39 02) 72 47 6562

PARIS

BNP Paribas Equities FranceSocit de Bourse20 boulevard des Italiens75009 ParisFranceTel (33 1) 4014 9673Fax (33 1) 4014 0066

ZURICH

BNP ParibasTalstrasse 418022 ZurichSwitzerlandTel (41 1) 229 6891Fax (41 1) 267 6813

MANAMA

BNP Paribas BahrainPO Box 5253ManamaBahrainTel (973) 53 3978Fax (973) 53 1237

BNP Paribas Equities (Asia) Ltd

TOKYO

BNP Paribas Securities (Japan) LtdGranTokyo North Tower1-9-1 Marunouchi, Chiyoda-KuTokyo 100-6740JapanTel (81 3) 6377 2000Fax (81 3) 5218 5970

MUMBAI

BNP Paribas Securities India Pvt Ltd6/F, Poonam ChambersB-Wing, Shivsagar EstateDr Annie Beasant Road, WorliMumbai 400 018IndiaTel (91 22) 6628 2300Fax (91 22) 6628 2455

BNP Paribas Equities (Asia) LtdShanghai Representative OfficeRoom 2630, 26/FShanghai World Financial Center100 Century AvenueShanghai 200120, ChinaTel (86 21) 6096 9000Fax (86 21) 6096 9018

JAKARTA

PT BNP Paribas Securities IndonesiaGrand Indonesia, Menara BCA,

JI. M.H. Thamrin No. 1Jakar ta 10 0IndonesiaTel (62 21) 2358 6586Fax (62 21) 2358 7587

35/F

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(886 2) 8729 7000Fax (886 2) 8101 2168Tel

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BNP - Development Credit Bank 08072010

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