Stock Review: DCB

Since the release of RBI guidelines, NBFCs say that they have aspirations to enter banking. If one makes a list there are around 20-25 aspirants. But I don't think Reserve Bank will issue more than 5 licenses. Considering this, consolidation is likely to happen in the existing space.

There may be some acquisitions and DCB seems to be a very good bank. They have about 80 branches, all branches are tech savvy with presence in 10 states. In FY11 there has been dramatic improvement in their working.

In FY10 DCB posted a net loss of Rs 78 crore but in FY11 there net profit was Rs 22 crore and the trend of profitability is continuing. The NIM is maintained at 3% plus. Net NPA has been brought down to 1.2% from 5% earlier. Capital adequacy ratio is quite healthy at 13%.

There is news of stake sale by the promoters of DCB. HDFC Bank is looking at this as a potential takeover target because they are holding 2% plus stake in this bank. Whenever there is stake sale news we see a sharp up move in this stock. It moves close to about Rs 60-65.

From a six-12 months horizon, the stock could be in Rs 45-65 range. The share is virtually ruling at the lower end of the range. I don't think that there is any downside. If one has 12 months view the share has potential to move to about Rs 65.