Rakesh Jhunjhunwala, the master stock picker, picks multibaggers with such consistency and consummate ease, that he makes all other stock pickers look like amateur investors.
Rakesh Jhunjhunwala has such a long list of multibaggers to his credit that just thinking of them means the heart beat faster. Lupin, CRISIL, Karur Vyasa Bank (KVB), Rallis, VIP Industries are some of his stellar stock picks that are responsible for making this living legend the Billionaire that he is.
So, it is not at all surprising that each of Rakesh Jhunjhunwala’s stock picks are awaited with bated breath by his billions of followers across the Globe which includes the mighty FIIs.
Rakesh Jhunjhunwala announced yesterday that his firm Rare Enterprises had bought 12,00,000 shares of Development Credit Bank (DCB) at an average price of Rs. 55 per share.
Lets see what it is about Development Credit Bank (DCB) that has caught the attention of the Oracle of Mumbai.
About Development Credit Bank (DCB)
Development Credit Bank (DCB) was set up in the 1930s and is over 80 years old though it became a Scheduled Commercial Bank only on May 31 1995. Development Credit Bank (DCB)’s promoter is “The Aga Khan Fund for Economic Development (AKFED)” which holds over 23% stake in the bank. Development Credit Bank (DCB) has about 80 branches across 10 states and two union territories.
Development Credit Bank (DCB)’s Financials
| Rs in Cr. | Mar 2011 | Dec 2010 | Sep 2010 | Jun 2010 |
| Sales Turnover | 148.23 | 140.22 | 127.88 | 119.94 |
| Other Income | 29.25 | 26.01 | 26.90 | 29.93 |
| EBITDA | 112.00 | 102.18 | 87.37 | 74.82 |
| Net Profit | 11.35 | 8.17 | 4.82 | -2.91 |
Development Credit Bank (DCB) got into serious trouble owing to its involvement in a couple of scams. It was believed to be involved in the “cobbler” scam in which accounts were opened in the names of cobblers to avail of soft loans from the Government and which were then siphoned off to unscrupulous industrialists.
Development Credit Bank (DCB) paid a steep price for this in terms of its financial performance because its depositors fled. A lot of borrowers took advantage of the situation and the NPAs soared.
DCB’s Q on Q Performance
| (Rs cr) | Mar 2011 | Mar 2010 | YOY |
|---|---|---|---|
| Operating Income | 148.23 | 114.33 | 29.65 |
| Total Expenses | 57.44 | 48.02 | 19.62 |
| Operating Profit | 90.79 | 66.31 | 36.92 |
| Other Income | 29.25 | 24.59 | 18.95 |
| PBDIT | 120.04 | 90.90 | 32.06 |
| PBT | 13.96 | -4.86 | N.A |
| Adjusted Net Profit | 11.35 | -8.16 | N.A |
In FY 2009, Development Credit Bank (DCB) reported a loss of Rs. 88 crores on a gross income of Rs. 845 crores. In FY 2010, Development Credit Bank (DCB)’s gross income plummeted to Rs. 459 crores and its net loss was Rs. 78 crores.
However, the picture is FY 2010-11 is different. Development Credit Bank (DCB) has been making profits in each Quarter. In the fourth Quarter (Jan-March 2011) Development Credit Bank (DCB) reported strong income from investments and loans and a net profit of Rs 13.96 crores compared to a net loss of Rs 4.85 crores during the same period last year. This was partly because the provision for contingent liabilities declined to Rs 8.04 crores for the quarter as compared with Rs 24.03 crores last year.
Development Credit Bank (DCB)’s total interest income rose to Rs 177.48 crores from Rs 138.92 crores on rising loan income and income from investments. For the full year ended March 31, Development Credit Bank (DCB) posted a net profit of Rs 21.43 crores compared with a net loss of Rs 78.45 crores. Year-on-year, contingent liabilities dropped to Rs 56.80 crores from Rs 121.01 crores a year ago, while interest from loans rose to Rs 636.26 crores from Rs 458.97 crores.
Development Credit Bank (DCB)’s valuations
Rakesh Jhunjhunwala did not become a billionaire by paying extravagantly for his purchases. Rakesh Jhunjhunwala drives a very hard bargain and ensures that much is left on the table for him to feast on.
| Company Name | Last Price ( Rs) |
MCap. (Rs in Cr.) |
P/BV (x) |
P/E (x) TTM |
Div. Yield (%) |
|---|---|---|---|---|---|
|
Development Credit Bank Ltd |
58.45 | 1,142 | 2.03 | 53.2 | 0.0 |
|
ICICI Bank Ltd |
1,101.80 | 1,29,468 | 2.52 | 29.6 | 1.0 |
|
HDFC Bank Ltd |
2,361.10 | 1,10,208 | 5.10 | 37.9 | 0.5 |
|
Axis Bank Ltd |
1,429.50 | 59,049 | 3.69 | 24.6 | 0.8 |
|
Kotak Mahindra Bank Ltd |
452.25 | 33,593 | 3.62 | 22.5 | 0.1 |
|
IndusInd Bank Ltd |
279.35 | 13,037 | 3.90 | 25.9 | 0.6 |
|
City Union Bank Ltd |
47.35 | 1,978 | 2.40 | 10.0 | 1.5 |
|
Lakshmi Vilas Bank Ltd |
112.90 | 1,087 | 1.47 | 20.6 | 0.5 |
|
Dhanlaxmi Bank Ltd |
125.00 | 1,035 | 1.26 | 50.4 | 0.3 |
Development Credit Bank (DCB), at the CMP of Rs. 58 is quoting about 2 times its Book. This is slightly expensive compared to its peers City Union Bank Ltd (P/BV 2.40 times), Lakshmi Vilas Bank Ltd (P/BV 1.47 times) & Dhanlaxmi Bank Ltd (P/BV 1.26 times). But the slight premium may be worth the growth trajectory that Rakesh Jhunjhunwala is expecting Development Credit Bank (DCB) to show in the coming few Quarters.
Petty Cash Investment?
One thing that must be borne in mind is that Rakesh Jhunjhunwala has a number of stocks that he buys on a whim. These stocks are called “time-pass stocks” because it is obvious that Rakesh Jhunjhunwala is not serious about them. Rakesh Jhunjhunwala makes a petty allocation of capital to such stocks as if to test their mettle before deciding whether they are worth his while or not.
The million-dollar question is whether Development Credit Bank (DCB) falls in the same category of Rakesh Jhunjhunwala’s other “testing” stocks or whether he is really serious about the prospects of Development Credit Bank (DCB). The amount invested in Development Credit Bank (DCB) is only about Rs. 6.60 crores. This is not even petty cash for the billionaire investor!
So, only time will tell whether Development Credit Bank (DCB) is Rakesh Jhunjhunwala’s multi-bagger stock but we are certainly keeping a close eye on the developments!
Pl advice , after the xcellent performance of the Q3 performance . Is it still a multibagger or
Yes. Results are very good. Advances have increased 23.4% from a year ago and deposits have grown 26.91%. There is a sharp drop in NPAs. Gross non-performing assets as a proportion of advances has declined to 2.77% as compared to 3.43% last quarter. The valuations at 1.48 times book are very reasonable. DCB is also a likely acquisition target. So, it is a good stock to keep in the portfolio.
In a recent interview with ET Now, Rakesh Jhunjhunwala clearly mentioned that ones that list his own name in block deals are his investments… ones with RARE Enterprises are trades. So he isn’t really betting long-term on DCB, max possibly 6-8 months. Doesn’t seem like a multi-bagger either given that it hasn’t expanded branches and ATM in business areas or upcoming town.
Though there is a short term trigger like yesterday’s Kotak bank promoter stake sale waiting to happen. DCB is still outside the RBI limit, so that may happen soon.
After a year what will be value of DCB