Keep An Eye On DCB Bank. After Raamdeo Agrawal, Saurabh Mukherjea Has A Strong Buy On It

When Raamdeo Agrawal puts a stock in the Motilal Oswal Wealth Creation Report, it means that he is ultra bullish on the stock. We saw how well his stock picks of 2014 have performed. Now, in 2015, Raamdeo Agrawal has gone the extra mile and put DCB Bank in “Motilal Oswal’s list of potential 100-Baggers”. In fact, DCB Bank is the solitary financial services stock in the elite list of seven potential 100-bagger stocks.

Saurabh Mukherjea is obsessed with buying only those stocks that meet his “good and clean” criteria. He doesn’t even look at stocks that don’t pass through his stringent quality control test.

In the case of DCB Bank, Saurabh’s Ambit Capital holds a treasure trove of 83,78,000 shares of DCB Bank. This holding is worth a mammoth Rs. 95 crore at the CMP of Rs. 113. Ambit has made a packet from the stock because the stock has more than doubled (119%) in the last year.

Saurabh’s logic for preferring DCB Bank is contained in his latest interview in ET. He said:

“If you look at DCB, it is actually the smallest listed bank in the country and we were looking at it very closely over the last couple of years. There are a couple of quite unique things about this bank. It is the only bank in our country to actually reduce stressed assets in absolute terms over the last five years. If you look at their NPA ratios, it is the lowest amongst the small banks. The cost of funding is amongst the lowest amongst the small banks and valuations are at two times. We reckon DCB should give you good returns going forward.”

Narsee Munjee, DCB’s Chairman, also came on record in the same interview to state that the Bank is very “conservative” and “careful” in its lending practices so as to keep a tight rein on the NPAs. He also stated that the Bank is growing at a slow and steady pace.

The same sentiment is echoed by Murali M Natrajan, MD & CEO, DCB Bank. He gave details of the Bank’s expansion plans and said that the objective is to “double the balance sheet size in the next three years”.

Murali M Natarajan gave more details of the manner in which the branch expansion is being planned in the Q3FY2015 Earnings Conference Call.

There is also an “Investors’ Presentation” dated January 2015 which sets out the “Business strategy” as follows:

(i) Rely mainly on Retail Deposits (Term, CASA) for funding. Focus on branch expansion in Tier 2 to Tier 6;

(ii) Grow Retail Mortgages, MSME, SME, Commercial Vehicle, Tractors, Gold Loans, mid-Corporate and Agri Loans. Create a diversified portfolio. Limit unsecured lending and lumpy exposures;

(iii) Increase fee income by cross selling insurance, mutual funds, trade and cash management;

(iv) Continuously strengthen credit processes, portfolio management and Recoveries;

(v) Relentless focus on Liquidity, Costs, Operational Risks, People and Customer Service. Improve continuously.

There are also research reports from Edelweiss and HDFC Sec which corroborate the analysis that DCB Bank has a lot of potential and is ripe for a buy.

So, if you are shopping for a mid-cap private bank, you have to give DCB Bank serious consideration.