-------- Forwarded Message --------
Subject: DCB Bank:From "Multibagger" to "muitibegger" ?? Is Expansion
Concern Overdone ?
Date: Fri, 16 Oct 2015 09:27:51 +0530
From: Asis Ghosh <asis...@gmail.com>
Reply-To: asis...@gmail.com
90-70 Might Be Proved As A Good Demand Zone
It may be another case of "buying good business in distress or in an
unusual conditions"
And can be a M&A target also in future
CMP: 92
Buy: 90-70
TGT: 122-135 (5-30 days)
TGT: 150-175 (12-24M)
TSL<60
Note:Consecutive closing below 60 for any reason, DCB may further crash
to 50-35 area, where it can be again accumulated for investment purpose
& better buying averages.
*Rationale:*
Apart from below street estimate Q2FY16 result to some extent, we all
know the reasons behind DCB's massive fall. Post result on Tuesday
evening, the management hinted that the bank is going to add around 150
branches by next one year taking the total branches to around 310.
Consequently the capex and incremental headcounts (salary costs for new
employees) may affect the bottom line of the bank substantially for
FY:16-18 and one can expect return (profit) from those expanded branches
only from FY:20-22.
Previously, the bank guided for 25-30 branches expansion per year.
As a result, almost all the analysts who were quite bullish on DCB bank,
almost turned back and immediately downgraded it for an average target
of 90 citing lower ROE for this sudden expansion cost and the stock
reached almost there in two days from 140 level !!
Now, on the part of the management, its nothing wrong to foresee the
likely competition from numerous small & payment banks who got licenses
from RBI recently and some of them are backed by major corporate groups,
start ups flush with funds. The bank may also undertake the guided
expansions of "brick & mortar" branches in future to combat the growing
competition as retail & SME lending is its major business beside some
corporate lending. Also, the proposed expansion in tire 2 to tier 6
cities will help it improve its CASA and priority sector lending. The
bank also managed its deteriorating NPA situation few years ago quite
well and now in a comfortable position after the new management took
charge.
Q2FY16 PAT fall by 10% (YOY) primarily due to sharp jump in provisions
and lower treasury income.
The DCB management also sees lower NIM high competition and price wars
in all products & segments, priority sector lending and proposed move by
RBI towards lower base rate to be calculated on marginal costs of funds.
DCB is also foraying actively in digital banking and there may be no
comparison between a full fledged bank and a no-frill bank (like payment
bank).
But all the above news might be already discounted by the market to a
great extent going by the recent price action of the scrip. If DCB feels
the heat for growing competition from existing as well as proposed banks
(small or payment entities), then it may be also applicable for other
small banks (private or PSU).
Looking ahead, India may not be the place for so much "Banks" here and
there as full banking operation is not so easy, considering the huge
capital requirement of it and Basel-III norms beside question of
viability. Thus, consolidation is bound to happen in the banking space
(private as well as PSU) and only major groups having very deep pocket
will survive in this game.
We might see some M&A in the banking space for small banks like DCB and
others in the coming days. Perhaps RBI is also creating a parallel set
of banks for future by giving licenses for partial banking to some major
groups, considering the huge stressed assets in our banking system,
specially in PSBS.
As par BG metrics & current market trend, fair valuation of DCB might be
(based on previous EPS forecast prior to the new guidance):*
Present median value: 120 (FY-15)
Projected fair value: 135-145-155 (FY:16-18)
* New guidance to be updated shortly, for the proposed expansion.
*Analytical Charts:*
<http://1.bp.blogspot.com/-A65kZPDtLM8/ViBy6WmUOkI/AAAAAAAAEYc/0z3e0KNMmOg/s1600/DCB-WK-15-10-2015.png>
<http://2.bp.blogspot.com/-mRuFVFHhFnM/ViBy8ho-WtI/AAAAAAAAEYk/bWvJo9wM6xc/s1600/DCB-FIBB-15-10-2015.png>
<http://2.bp.blogspot.com/-XBp85L50iOc/ViBy_MS_eeI/AAAAAAAAEYs/AZvkyHtUz0M/s1600/DCB-WK-MA-15-10-2015.png>
<http://4.bp.blogspot.com/-dQugWcl83VE/ViBzBOQcmRI/AAAAAAAAEY0/dbKMw1EQYJw/s1600/DCB-PATTERN-15-10-2015.png>
<http://4.bp.blogspot.com/-sAtXmgCNYYE/ViBzDurDuPI/AAAAAAAAEY8/Uy7-DPsFofw/s1600/DCB-TL-15-10-2015.png>
<http://1.bp.blogspot.com/-WRo87UVG9sc/ViBzF4DndVI/AAAAAAAAEZE/sIGotNArlOI/s1600/DCB-TL-LT-15-10-2015.png>
--
Thanks & Regards,
Asis Ghosh
(asisghosh.blogspot.com)
NCFM-TA Certified
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