Stock Review: Dhanlaxmi Bank

Since the time the RBI guidelines for private sector banking was released, we have been seeing renewed interest in many of these stocks. In fact, Bajaj Finserv and L&T Finance. have seen a rise of Rs 1000 crore in their market cap, and even in some other prospective companies, we have seen a rise in market cap by about Rs 300-500 crore.

So, identifying one bank from the lot that is likely to benefit, also given its quite a tech-savvy bank, is Dhanlaxmi Bank.

They have 275 branches with ATMs more than 450. The equity base is quite low at Rs 85 crore. In July a year ago, they made the private placement of about Rs 380 crore at Rs 181 per share, and if you see the present price-to-book, it is ruling at 0.75 times. I don't think that on a historic book value-basis even some of the bigger public sector banks must be ruling at that kind of valuations. So I think this is quite a good investment.

In fact, the bank has decided to issue shares at Rs 140 but one of the investors who has already invested in the bank did not get the permission from their country's regulator and that preferential allotment has been kept on hold. However, that is very much on card because the bank is intending to mobilize close to about Rs 1000 crore in their second round of fund raising plans. If that happens, it is likely to be made at about Rs 130-140. Since now the share is ruling at quite a low valuation at about Rs 78, if someone can really take a call, their share can easily give a return of about 35-40% if caped with a view of 12 months.