IDFC First Bank Stock Analysis

 

by Rajat Sharma | April 10, 2019

 

On 18th December, 2018, IDFC Bank Ltd. and Capital First Ltd. announced the completion of merger and the merged entity will be called IDFC First Bank (“IDFC First” or the “Bank”).

Current Price (10th June, 2019) – Rs. 42.10

Market Cap – Rs. 20,180.24 Cr.

Promoter – (IDFC Financial Holding Company Limited) – 40% stake.

IDFC First Bank now offer a wider array of retail and wholesale banking products, services and digital innovations, to a greater number of customer segments. It serves 7.2 million customers through its 206 bank branches, 140 ATMs, 454 rural business correspondent centers across the country’s urban and rural geographies.

On a combined basis, IDFC First Bank has on-book loan assets of 110,400 Cr., for the quarter ended March 31, 2019. The retail loan book now contribute 37% to the overall loan book.

Before Merger, the credit book continues to be largely driven by corporate portfolio which formed 72% of the total book.

Loan Book (Rs. Cr.) Mar-18 Dec-18* Mar-19*
Retail Assets 7,043 36,236 40,812
Rural 3,218 4,704 5,185
SME 1,794 13,574 15,767
Consumer 2,031 17,957 19,860
Wholesale Assets 54,911 56,809 53,649
Corporate 27,039 34,098 32,190
Infrastructure 26,828 22,710 21,459
Priority Sector Lending 8,980 8,575 12,924
Stressed Equity and SRs 3,162 3,040 3,016
Total Loan Assets 73,052 1,04,660 1,10,400

* Post merger with Capital First

Pro-Forma Financials (Q2 FY 19) before the merger

  Capital First IDFC Bank IDFC First Bank
Loan Asset (on-Book) Rs. 27,351 Cr Rs. 75,337 Cr. Rs. 102,688
% of Retail Loan Assets 89% 13% 33%
Total Borrowing + Deposits Rs. 24,550 Cr Rs. 101,232 Rs. 125,782
CASA Rs. 6,426 Cr Rs. 6,426 Cr
Net worth Rs. 2,928 Cr Rs. 14,776 Cr Rs. 17,704Cr
NII Rs. 615 Cr Rs. 451 Cr Rs. 1,066 Cr
Total Income Rs. 695 Cr Rs. 571 Cr Rs. 1,266 Cr
Opex Rs. 327 Cr Rs. 552 Cr Rs. 879 Cr
Provisions Rs. 210 Cr Rs. 601Cr Rs. 811 Cr
PAT Rs. 105 Cr Rs. -370 Cr* Rs. -265 Cr

*The Bank took one-time provisions relating to stressed infrastructure loans. Without such one-time charge off, the PAT for H1 FY19 would be Rs. 81 Cr.

Financial Performance

Particulars Jun-18 Sep-18 Dec-18 Mar-19 FY19

Net Interest Income

 (In Rs. Cr.)

490 451 1,145 1,113 3,199
Other Income (In Rs. Cr.) 103 118 301 334 856

Operating Profit

(In Rs. Cr.)

146 17 305 299 768
PAT (In Rs. Cr.) 182 (370) (1,538) (218) (1,944)

Q4 FY 2019 Highlights:

  • Net Interest Income for the quarter ended on 31 March 2019 was Rs. 1,113 Cr.
  • Net Interest Margin for the quarter ended on 31 March 2019 was at 3.03%
  • The Gross and Net NPA of the Bank as of 31 March 2019 stood at 2.43% and 1.27% as compared to 3.31% and 1.69% as of 31st March 2018 and as compared to 1.97% and 0.95% as of 31st December 2018.
  • Total capital adequacy ratio as per Basel III guidelines, was at 15.5%

Peer Comparison

PRIVATE SECTOR BANKS
Name Last Price Market Cap. NPA P/E P/B
HDFC Bank 2,435.90 663,793.50 0.40% 31.49 5.01
Kotak Mahindra 1,488.00 284,046.91 0.70% 39.43 5.63
ICICI Bank 414.05 267,018.01 2.06% 79.32 2.34
Axis Bank 811.10 208,694.58 2.06% 44.61 3.25
IndusInd Bank 1,541.00 92,917.43 1.21% 28.15 3.96
Bandhan Bank 559.60 66,764.92 0.58% 34.21 5.89
Yes Bank 133.55 30,941.73 1.86% 18.00 1.20
RBL Bank 663.45 28,343.34 0.69% 32.70 3.76
Federal Bank 105.00 20,845.97 1.48% 16.75 1.70
City Union Bank 215.25 15,810.13 1.81% 23.15 4.45
Karur Vysya 77.90 6,226.63 4.98% 29.51 0.99
DCB Bank 237.00 7,339.95 0.65% 22.55 2.56
Karnataka Bank 105.00 2,967.38 2.95% 0.54 6.22
South Ind Bk 13.55 2,452.12 3.45% 9.89 0.47
Average   29.31 3.39
IDFC First Bank 42.25 20,204.15 1.27% 1.21

*Price & Market Cap – 10 June, 2019 and NPA figures on 31st March 2019.

WHAT’S DRIVING THE STOCK?

Robust Loan Growth

Before merger, IDFC First Bank has grown its credit almost entirely on the back of the corporate sector, which constitutes ~72% of its outstanding credit. The main rationale of IDFC Bank merger with Capital First is to increase the share of retail loan book.  As of Q2 FY2019, Capital First has 89% of retail loan assets.

Retail Assets as a % of the total Funded Assets has improved substantially from 13% to 35% post the merger.

IDFC First Loan Book

Management Guidance –

  • The Bank plans to grow the retail asset book from Rs. 36,236 Cr to over Rs. 100,000 Cr
  • The Bank plans to increase the retail book composition to more than 70% in the next 5-6 years.
  • Being a high yielding segment, it will support NIM, going ahead.

Improvement in CASA ratio

As of March 31, 2019, the total deposits of the Bank stood at Rs. 70,479 Cr., up 14% from Rs. 61,914 Cr. in December 2018. Out of total deposits, low cost Current Account Savings Accounts Deposits (CASA) was at Rs. 9,114 Cr, contributing 12.9% to the total deposits. The Bank aims to increase the CASA Ratio on a continuous basis year on year and strive to reach 30% CASA ratio within the next 5-6 years.

Strong Management Guidance – the Bank plans to reach the following goals in the next 5-6 years of operation:

  • Loan Book – To reach Rs. 180,000 Cr.
  • % Retail Exposure – 70% of the total loan book
  • Net Interest Margin – To reach ~5.5%
  • RoA% – To reach 1.4 – 1.6%
  • RoE% – To reach 13 – 15%

Asset Quality – As of March 2019, IDFC First NPAs stood at 1.3%. Before the merger, IDFC Bank did provisions of nearly Rs 601.38 Cr. in Q2 FY 2019. In addition, the Bank as part of the clean-up, sold an additional Rs 2,400 Cr. of stressed assets (comprising exposure to several borrowers, including DS Group) to Edelweiss Asset Reconstruction Company for Rs 622.6 Cr.

WHAT’S DRAGGING THE STOCK?

Intense competition, threat of new entrants – Many of the services that were traditionally performed by the banks are now being performed by other players such as depositories, NBFCs and brokerage houses which have intensified competition in the banking industry.

Fintechs Disrupting Financial Service Market through innovative solutions across wide range of services such as payments, lending, data analytics, wealth management.

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1 Comment

  1. Rohi Shetty

    Hi Rajat,
    Thanks for this comprehensive analysis. So what’s your recommendation for IDFC First Bank? Buy, Sell, Hold? And where does IDFC figure in all this? Thanks and warm regards.

    Reply

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