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Home IDFC First Bank – Stock For the Month of February 2019

IDFC First Bank – Stock For the Month of February 2019

Price: Rs. 43.70

About the Company

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 Bank will now offer a wider array of retail and wholesale banking products, services and digital innovations, to a greater number of customer segments. It will serve 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 Rs. 104,660 Cr., for the quarter ended December 31, 2018. The retail loan book will now contribute 34.62% to the overall loan book.

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.

Quarterly Results – Q3 FY 2019

Particulars

Q3 FY 2018

Q2 FY 2019

Q3 FY 2019

Q-o-Q %

Y-o-Y %

Net Interest Income

 (In Rs. Cr.)

494.96

451.21

1145.18

154%

131%

Operating Profit

(In Rs. Cr.)

314.72

18.70

307.96

1547%

-2%

PAT (In Rs. Cr.)

146.11

(369.69)

(1536.01)

315%

-1151%

EPS (In Rs.)

0.43

(1.09)

(3.17)

191%

-837%

Q3 FY 2019 Highlights:

  • Net Interest Income for the quarter ended on 31 December 2018 was Rs. 1,145 Cr.
  • Net Interest Margin for the quarter ended on 31 December 2018 was at 3.27%
  • Net Loss of Rs 1,538 Cr., mainly on account of a one-time exceptional item.
  • The management attributed the high loss to amortization of Rs 2,600 Cr. worth of intangibles, mainly goodwill, arising out of the merger move.
  • Gross NPAs stood 1.97% and net NPA at 0.95% while the provision coverage ratio stood at 72.9.
  • Total capital adequacy ratio as per Basel III guidelines, was at 16.51, of which tier I was at 16.14.

INVESTMENT RATIONALE

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.

Loan Book (Rs. Cr.)

Dec-17

Mar-18

Jun-18

Sep-18

Dec-18*

Retail Funded Assets

5,376

7,043

8,211

9,918

36,236

Rural

2,652

3,218

3,616

4,243

4,704

SME

1,173

1,794

2,151

2,772

13,574

Consumer

1,551

2,031

2,444

2,903

17,957

Wholesale Funded Assets

51,345

54,911

56,453

54,082

56,809

Corporate

22,024

27,039

28,861

30,447

34,098

Infrastructure

29,268

26,828

26,550

23,635

22,710

Priority Sector Lending Inorganic

9,203

8,980

8,466

8,256

8,575

Stressed Equity and SRs

3,194

3,162

3,102

3,081

3,040

Total Loan Assets

69,065

73,052

75,190

75,337

1,04,660

* Post merger with Capital First

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

IDFC First Bank

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 December 31, 2018, the total deposits of the Bank stood at Rs. 61,914 Cr., up 28% from Rs. 48,356 Cr. in September 2018. Out of total deposits, low cost Current Account Savings Accounts Deposits (CASA) was at Rs 6,421 Cr, contributing 10.37% to the total deposits. The Bank aims to increase the CASA Ratio from 10.37% 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%

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.

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1,526.05

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Yes Bank

176.45

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440.40

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RBL Bank

584.15

24,875.27

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Federal Bank

85.50

16,965.42

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City Union Bank

185.50

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Karur Vysya

85.55

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DCB Bank

179.55

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Karnataka Bank

116.70

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South Ind Bk

12.95

2,343.54

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Average

48.68

2.82

IDFC First Bank

41.60

19,891.13

0.95%

13.87

1.19

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