DCB Bank – 30-35% upside expected in 12 months:
DCB Bank lost 20-25 percent twice in the last 12 months and has bounced back so sharply, which very clearly indicates that there is a very strong positive uptrend. Essentially there is a lot of appetite for these kind of banks. People have seen the way YES Bank and IndusInd Bank have already run up so much, even ING Vysya Bank before the Kotak Mahindra Bank merger. The appetite of small banks is huge because that is where you make a huge multiple. You cannot have Axis Bank doubling from the current level very soon but a small bank would potentially do well.
IDFC may not get that kind of a fancy except for speculation on the de-merger, DCB Bank has a very strong franchise within a particular trade community in Maharashtra and Gujarat and their propensity to pay back on time is legendary. That is one of the reasons why they have just had some net non-performing assets (NPAs) of about 1.2 percent. They have a current account saving account (CASA), which is not very huge as yet with just late 20s, early 30s but that is a lot of headroom for growth. In fact they have not been aggressive on deposit mobilisation as yet.
What is important about DCB’s growth is their focus on mortgages in the last three years. Very quietly, gradually their book has built primarily on the mortgage side and not too much on loans business and stuff like that and that is a very strong franchise. I think given the kind of low cost housing push and the interest rate cuts, housing finance anyways has started getting re-rated positively. So capital adequacy is decent enough, more than 14 percent, they have indicated they will grow at 25 percent and the balance sheet will grow this year without fresh capital getting infused. So we have got all the positive metrics to grow from here in a significant way. I think the consolidation is kind of already over. Technically there has been a good, decent breakout also. So once that happens, we could see 30-35 percent upside in the next 12 months from here.
Motherson Sumi Systems – just a little time correction before the upward journey resumes:
All Motherson Sumi Systems needs is a little bit of time correction because finally what is going to happen is, it has the capabilities to start supplying to different original equipment manufacturers (OEMs), it is a question of realigning their focus on to some of the Japanese players. The hiring of Japanese cars in the US has suddenly seen a huge change in demand in the last 15 days ever since the Volkswagen scam. For a minute if you take the scandal away, in fact it is good for the company and they had mentioned that they would want to move away from this concentration on a few clients. Probably it is time and it has just happened but if they were to do that, the Japanese market opens up a whole new array of business for them. I think the company has got capabilities, which are very sound.
Let us not forget that and they have invested into hardcore assets in terms of manufacturing capacities and strength. So that is going to augur well for them. If you have noticed that recent development that PSA Peugeot Citroen is talking to Tata Motors, specially at the Jaguar-Land Rover (JLR) unit to make cars for PSA Peugeot Citroen, that is a great sign, that is Indian car manufacturers start manufacturing different brands. If PSA Peugeot Citroen and JLR marriage happens, that is going to be a path-breaking theme and if Tata Motors could revive itself with that, Motherson Sumi has absolutely got nothing to worry about. It has enough chances but there is a time correction and you will probably see in the stock for some time.
NIIT – huge beneficiary of Govt. and PSU contracts on e-learning:
Out of the listed space, there are very few contenders who could dip into this growing kitty of money that the government is willing to spend and they started off with the skilled development company, more focused on to IT and then they realised that people who are not very willing to pay unless we were assuring them of jobs, the skill India programme is very vocationally rich and that is what makes it a potential success.
NIIT have already started seeing contracts coming from a lot of large public sector undertaking (PSUs). Last week they have got a huge contract, which was announced, there are two more in the pipeline. It is restructuring the company and segregating the corporate training and school learning, which are two distinct aspects, the different revenue models, the different cycles that they follow, their school learning is very cyclical in terms of timing. There are these batches that you can have in vacation, which pay you a lot whereas corporate training is more perpetual. They have got a lot of new people at the top management with the right kind of experience and background and even the stock hasn’t corrected much in this entire downtrend.
NIIT has strength, it has demand, there is not much in the listed space to ride on the skill India bandwagon, this could be a proxy and then move all the way to more than Rs 100.