Development Credit Bank Ltd is raising Rs 100 crore from three private equity firms in a deal which will see it diluting 9.34 per cent stake. Tano Capital, TVS Capital
and Wolfensohn Capital Partners are acquiring the bank’s shares 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 shares are being acquired for Rs 47.84 a unit, 1.89 per cent premium to the closing price of Rs 46.95 on Thursday. The share price of Development Credit Bank shot up over 3.5 per cent in early trade on Friday before coming down to Rs 47.4, up 0.96 per cent at 9:44 am. Equirus Capital was the sole advisor to Development Credit Bank for this transaction.
Wolfensohn Capital Partners, promoted by the former World Bank president James D. Wolfensohn, was earlier looking to invest, along with a consortium, in Dhanlaxmi Bank but the deal got scrapped last year.
Earlier this month, it led a round of Rs 128 crore with FMO to invest in Bangalore-based microfinance firm Ujjivan.
For TVS Capital, this will be the second investment in a bank after it invested, along with a consortium, in Kolhapur-based Ratnakar Bank. This will also be its first investment in a listed company.
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 would 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 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.
The current deal will 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.