DCB disappointing Q2

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The operational results are quite strong:

(i) Net interest income, the difference between interest earned and interest expended, grew by 27.44 percent to Rs 150 crore from Rs 117.7 crore year-on-year, led by strong advances growth.

(ii) Advances in September quarter surged 27 percent to Rs 11,180.87 crore and deposits spiked 24.4 percent to Rs 13,557.28 crore compared to same quarter last year.

(iii) Other income (non interest income) during the quarter increased 31.8 percent year-on-year Rs 48.70 crore and operating profit climbed 30.5 percent to Rs 78.10 crore.

(iv) Asset quality was stable with gross non-performing assets (NPA) rising 9 basis points Y-o-Y (up 3 bps Q-o-Q) to 1.99 percent. Net NPA increased (down 6 bps on sequential basis) to 1.16 percent in Q2FY16 from 1.07 percent in Q2FY15.

The problem was caused by provisions for bad loans which jumped 57.6 percent on yearly basis and 20.2 percent sequentially to Rs 21.67 crore. Tax expenses rose nearly 4-fold to Rs 19.5 crore in September quarter 2015 from Rs 5.01 crore in corresponding quarter of last fiscal.

Source: https://www.moneycontrol.com/news/results/dcb-bank-q2-profit-falls-10higher-provisions-tax-cost_3566021.html

 

DCB IS 100 Bagger stock as per Motilal Oswal. IT is lambi race ko ghoda!

 

As bank is a lender to SME,and due to sluggish economic condition SME are in pain.Although figures due to tax are not comparable, but in banking such pit falls of defaulters are realty. This may continue for three or four more quarters and may keep on surprising one or the other bank.As our banks keep on applying all type of tricks at their disposal, so pain will come out of banking slowly. pain is every where, less in private sector than public ,but is realty. So for atleast next 2 years such issues will keep on surfacing.If you can come on terms with this fact and only betting on further good quality lending ,then only you can invest in banking.If you don't want uncertainty, go to FMCG counters.

 

No one can run the bank with zero NPA ... If it's possible then I m damn sure that it can be done with sacrificing the advances growth... There should be some NPA level which can be considered as tolerable. ..In that sense, DCB s NPA s not in alarming level

 

Stock is down 20%! Anyone buying?

 

I just bought some....

 

But whats the trigger? Cant be just results... Any downgrade report like whats happened with bharat forge today

 

I will buy only after satblising of price.

 

There is a change in their strategy. They have stated they are doubling branches in 1 year. Implications on EPS in the short and medium term are straight forward. Also , when players change strategy midway and this radically, leaves a weird taste in the mouth. Not in my portfolio coz I never understood this story too well. Not buying

 

The operational results are strong but Kotak has issued a sell call on the basis that the proposed expansion plans will severely impact profitability:

Kotak has downgraded the stock to sell from buy after a disappointment over profitability in September quarter as it feels investment thesis appears to be broken at this stage. Earlier hypothesis was steady loan growth, healthy capital structure, cost control and execution, it says.

DCB is looking to double branches to 300 and increase employees by 50-60 percent in next 12-14 months in what appears to be a very dangerous, unexpected and disappointing shift in their strategy of steady improvement in cost ratios, focusing on risk and improving return ratios, says Kotak.

The current branch expansion plan is a major shift from previous strategy of adding 25-30 branches every year, which will have negative impact on its profit and loss and cost to income ratio. The brokerage has also slashed target price to Rs 100 apiece from Rs 150 earlier. It expects return on equity to remain below 10 percent in short term, saying this (strategy change) could lead to repeating mistakes that bank committed in past decade. Current return on equity stood at 8.92 percent.

According to Kotak, bank’s ability to tap capital or liquidity window is significantly challenged in this period. Net interest margin, which improved to 3.79 percent during the quarter from 3.72 percent in year-ago period, could decline going ahead due to new strategy, it feels.

Read more at: https://www.moneycontrol.com/news/b...st-q2-nos_3581461.html?utm_source=ref_article

In the morning I was feeling tempted to buy a bit. Not feeling so confident now.

 

It borders absurdity..... So kotak feels its a dangerous shift in their strategy. Ask yourself : does kotak know better or the bank management and its think tank which charted out their strategy

What state have we reached. Some crappy junior analyst and his/her opinion can rattle a scrip.

 

Dear Sachin ,No body can say surely,that is why I have kept my bet on all 5 large pvt bank and two small Banks DCB and Federal.I would like to take sectoral bet rather taking stock specific World is competitive, we don't know who will be ultimate winners.Simialry in IT and Pharma.I had bet both on TCS ,Infy and Lupin ,Sun.Very dynamic world. Bach Ke Rahna Re Baba,Bach Ke Rahna Re.This is the reason I have thirty stocks and could not muster courage to go down to 10.But I am not living the counter and would like to see one or two more quarters before making any negative opinion.

 

One of their senior management is a good friend of mine. Already emailed him but i could get sworn to secrecy.. So maynot b able to share his response in here

 

Isnt there a conflict of interest if Kotak gives a sell call, because another bank wants to grow?
Why it isnt good if some one wants to grow aggressively..

I would wait for another lower circuit and probably enter around 75 levels after careful analysis/
(sorry for the people who are already invested)

 

Dear Sachin. You can now post your view after having more information from various quarter. For us you are expert on this subject.

 

Kotak Bank and Kotak Sec are different.

 

With chinese walls

 

I know its different. Why wouldnt they like an aggressive growth strategy?.

 

Shortterm impact on profitability due to heavy upfront investments with a time lag for business growth to happen