DCB disappointing Q2

Why they dont like is a million dollar question But what is most objectionable is their comment that it is a disappointing shift in their strategy....

Their analyst must just about know the spelling of 'banking' and the audacity shown by kotak in canning their new strategy (without presumably knowing the finer details) is deplorable

 

I think DCB has decided to go aggressively becuase of entry of two new Banks , coming new payment and small Banks.May be management decided to take first movers advantage over coming new player.I as invester would like to support any decision which they think is right for their business.I think by increasing branches they want to increase retail portfolio and want to be cautious in corporate portfolio. Stretagy in my view is right.

 

In banking business, we can't get growth continuously with the old branches because there is a saturation point ... For example, Indian Bank tier 2 branch can do 300 crores business means that's their saturation level, can't move up ... So branch expansion s 100% perfect decision in banking business , IMHO ... In my branch service area, 100 shops are available means then I can give loan to around 80 shops (if there is no other bank in that area ) so it's my saturation point . . unless management go for branch expansion, growth never occurs in banking business ... Kotak s analyst should come out and ask some banking person to learn what is banking pls

 

In new branches, initially there will be some loss only but after one or two year it makes profit for sure ... One thing they should keep in mind s asset quality ... Retail loan s 100% better when we compare with corporate loans. .I hope the management s on right path. .. We should hear what the management says rather than so called self proclaimed expert...

 

If there is no expansion of branches then how will a bank grow. it has to do that and DCB was reporting good results quarter after quarter one ok quarter doesnt change any thing 2 years down the line things will be much better and one thing good stocks to be bought when there is termoil in them which is a sign for multibagger returns. this are the reports when infosys was at 3300 were giving sell report of 2700 when one of there top managment quit and now see it adjusting bonus its at about 4700 plus divident. on the day of sell report there was carnage in infosys stock and it was down 5%

 

A day after it posted a tepid September quarter numbers, brokerage house Kotak downgraded private sector lender DCB Bank to sell from buy and slashed its target price to Rs 100 from Rs 150 earlier. Anand rathi has also has a sell rating on the stock with a target price of Rs 95. The downgrades coupled with weak Q2 were enough to spook the street that led the stock to fall 20 percent on Wednesday.

Although the bank posted a decline in its Q2 net profits, that's not why brokerages are downgrading the stock. They see a significant impact on the P&L accounts due to a strategy change introduced by the bank. The strategy changes are:

-To double the number of branches to 300 from 150
-To increase headcount to 5400-5800 from 3700 in next 12-15 months
-To invest heavily in customer facing, frontline enabling technologies

As a result of branch expansion, DCB's P&L account is estimated to see an impact of Rs 9-15 cr in FY16, Rs 50-65 cr in FY17 and Rs 20-35 cr in FY18 and will further impact the cost to income ratio of the bank which is already amongst the highest in the industry. Analysts now fear that the expansion will increase cost-to-income ratio in the near term while ROE will decline. Both Kotak and Anand Rathi see cost-to-income going up as much as 65 percent.

DCB management, however, expects this accelerated investment programme to break even in 24-30 months. Defending the move, DCB chairman Nasser Munjee says the bank is not changing its business model and the investment has to be made in the face of intensifying competition. "Business development can take place only through branch expansion," Munjee told CNBC-TV18 in an exclusive interview.

Not only is Kotak not convinced by the new strategy, but also fears the move could lead to repeating mistakes that the bank committed in the past decade. In its report, Kotak says: "DCB is looking to double branches to 300 & 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."

Justifying its call to downgrade the stock, Anand Rathi says: "We believe the ROA and ROE of DCB will range of 50-60bps and 6-9 percent, respectively. Cost to income ratio could rise to 65-70 percent for the next 3 years leading to a significant downward revision in our estimates."

 

Fundamental question : can DCB set up 150 new branches in 12-15 months? It means one new branch being launched every 3 days

 

DCB results have nothing wrong,its tax increase to 20 Crore from 5 Crore if I collect figures rightly.Its earlier tax were low due to earlier carry forward losses ,which ended last year and now is under normal tax rate.Now profit is down 10% lower to 37 Crore.So 10% is aprox 3.8 Crore.So if we see figures net without taxes it is up 11Crore.So to me it is OK and if they are increasing branches,it will increase expenses initially but it may increase profit to double in next three years .So I am still positive on DCB as increase in branches will increase its retail portfolio and CASA in long run..This is a good step to remain ahead of smaller and new Banks. I hope stock will recover but may not out perform for next two years but is a good hold and accumulate.But it is still a multibagger for period of more than three years and longer.So I will hold stock tightly and may add slowly in next two year to reap rich harvest in long run.I would like to throw report of Sell from Kotak and anand rathi securities out of my window and keep faith in management .I believe management knows better than others ,what they need to do.

 

Okay when they report low levels of profit in upcoming quarters then we can accumulate it ... Then it must be the multibagger

 

DCB Bank going for circuit (LC) today also

 

DCB is a classic case of latest management fraud...management well knew dat dis type of a absurd proposal of doubling nos of branch in 1 year for a not so yet stable bank like DVB will ceeate huge panic among investors especially among retail investors...so, stock price will must come down so dat people close to d management will purchase at low level and then DCB will again announce dat decision of doubling branch will b in 2 year instead of 1 year etc showing investors grievance on their earlier decision. ..m was just thinking this wen 1st saw d news today morning..then seeing dat Aswini Gujral also telling same thing in ET NOW...so, probably many of d investors thinking d same...so, people...come on...lodge complaints to SEBI against DCB management demanding a probe on d list of people who bought DCB in last two days when it was down by 35%.....I have already lodged d complaint today....a nos of ckmplain will push SEBI to investigate d matter surely...

 

I don't think investigating such issues is practical. I know that there are some people on this forum and blog itself who announced that they bought some stock. I was also feeling tempted to buy but did not. My loss. These things happen. The management has done a somersault and backtracked on the expansion plans. You can't read a conspiracy in every business situation.

 

To decide for expansion is a business decision.Management has not backed out of opening of 150 branched.They might have done home work already and I hope they have good execution plan.We can not blame management for panic .Growth is life.Faster the better.They just have adjusted the time frame to please the market players and investers.I am with the bank on their decision for expansion.They now want to become mid size bank from small bank .I would any way think this Bank should aim to be among top 5 private banks in next 15 years ,this has to be done to become 100x..I like their aggressive stance and hope they had planned better execution.To think big is first step to succeed and I congratulate them to think big.Large no of small investers are with management and I have already thrown out from my window the sell call of brokages houses ,as it was thoughtless process of them .How passengers can decide in which gear vehicle will run,I think driver ie management know better and might have selected the best gear and suitable speed .I shall remain with my investment and would like to sell my DCB stock at 100 x to these brokages firms itself in long run.Any way some of brokages or so called big investers are able to call right bets only when market is low. As now market is at higher levels ,now you will see large no of misguided missiles from them.Their failure to call right at higher valuations shows shallowness in their research .

 

Next 15 years.... The way banking is conducted is gonna be completely different. Brick and motar brnches will be increasing be irrelevant. This shift is even seen nowin urban areas... I dont really recollect when was the last time i went to my bank branch.

The u- turn shown by the management is in poor light. It shows their own lack of conviction in their declared strategy which isnt a good sign. Either a fickle management or in cahoots with price manipulators....

I raised the fundamental point of whether they can roll out 150 branches in 15 months ( so a branch every 3 days). In my view launching 150 branches in 2 years isnt feasible for a DCB... ( a new branch every week)

 

But Dear Sachin ,people would like that they will open their account only if Bank has branch in their city .I think branch still remains a major interface between bank and customer .It is branch employees who stll bring many business.People are also comfortable if their bank is having pan India presence. I have still to hear even from bigger and best private banks to reduce their branches except if their is duplicacy due to some acquired bank.If I accept your logic,we may hear branch reduction plan by private banks soon ?.But as you say you have not gone to bank branch since long,so that means now we shall have very small branches and so will be lower cost.This is good for small Banks like DCB who are already very innovative with very small size of bank branch.

 

I must agree with Sachins observation that the flip flop by DCB bank on branch expansion leaves one wondering how serious an intent was it in the first place. If they believed it was the right way to go two days back, it can't suddenly be wrong now. The commitment of management has to be to long term shareholder wealth creation. In this case, they have demonstrated they are more concerned about short term market pressures ( which are legitimate concerns for those with a two year frame)

As far as future of branches are concerned, yes we are moving toward a lower dependence on physical branches. But this trajectory is different in urban, semi urban and rural markets.

In semi urban and rural markets , the local banker with the bank in the front and his house in the back, will continue for longer than we imagine sitting in our urban armchairs.

This whole saga is a classic for two reasons :

- long term shareholder value creation Vs. relentless quarterly pressures creating sub optimal capital allocation.

- the importance of delineating a strategy which is well considered and then to have the gumption to defend and articulate the rationale; to stay the course and not be a short term market ( analyst) pleaser.

So my take is even if they got the strategy right the first time around, I don't place great weight on their ability to see it through in the face of possible headwinds.