Would take the liberty to refer you to this post of last year. I had used rough metrics to try and gauge whether the “hole is getting bigger”. You could add FY18 numbers to validate if the trend persists or if there has been any improvement.
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@prashbglr : I guess difference in our understanding is because of this:
“Provision(end of 2016)” doesn’t represent the provision done during 2016. It is a BalanceSheet Account which represents cumulative provisions done till date which have not been written-off from the books.
For example, as on date 31-Mar-2016, Capital First reports that it has accumulated Gross Non-Performing-Assets (GNPA) of 279 Cr so far out of the total loan book of 16041 and total accumulated Net Non-Performing-Assets(NNPA) of 194 Cr which means accumulated provisions so far are 85 Cr. This doesn’t mean that Rs. 85 Cr provisioning was made during 2016 as Rs. 85 Cr is a balance sheet number and not a P&L number. In normal circumstances, if Capital First writes-off some amount it will reduce AUM, and Provisions by the same amount in the Balance Sheet.
Hence, it is not correct to subtract BalanceSheet acc. “Provision” from a P&L acc.“Provision+W/Offs” to derive P&L acc “W/Offs”.
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for next 2-3 years there will be lot of pain in this stock. Reasons being
- Merger with IDFC
- Branch network expansion would cause drag on P&L (600 by 2024 from current ~125 - Motilal Oswal report)
I am not going to sell. Reasons being - There are v few compounding machines run by ethical mgmt.
- CASA is permanent source of low liability capital which can be acquired by IDFC Bank and deployed by Capital First - merger benfits
Keeping aside the above discussion, GNPA+W/Offs % is increasing y-o-y which indicates pain is going to continue for some more time.
Assuming that ~40%-50% of their loan book is for MSME and similarly ~40%-50% is for consumer durable, looks like their MSME loan book is severely stressed and GNPAs are quite higher than average GNPAs of 4.55% (as consumer durable loans are short tenure and less risky).
Do we have a break-up of their loan book across verticals - MSME, Two Wheelers, Consumer Durables?
@h_nazkani I found the break-up of their loanbook in a research report:
Could you please elaborate on the insights gleaned w.r.t GNPA/writeoffs…
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Based on the figures given in the table, CAGR rates for AUM is 29%, PBT is 55% and Provision+write off is 88%. Then how it is getting better or you are saying its positive? Just trying to understand the reasoning.
Thanks to @h_nazkani, I have corrected my calculation. GNPA is not getting better, it is higher than 2017.
It’s 1 month old research report by the way!
Can you please explain this point? So far IDFC has miserably failed in growing CASA. Who are the unbanked customers left out there that IDFC will poach that other banks cannot?
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CASA accounts are always low liability, perennial source of liability. Kind of float money of insurance companies. Hence every bank tries to increase that source of liability instead of borrowing externally.
There are always new folks added to banking system, people who create multiple bank accounts, students who pass out from college who need salary accounts and i can add more to the list of unbanked / marginally banked / switchers etc. PSUs control 70% market share of banking system which will slowly shift to private banks. IDFC Bank will also get some portion of it. Plus setting up retail franchise is nothing new for Vaidyanathan. He did this for 10 years at ICICI. I hope he doesn’t complacent.
Off course it is going to be challenging, as HDFC / ICICI have huge mind share / brand recognition amongst consumers + have retail presence + established corporate networks in place.
IDFC Bank is late to the party. However, India has a huge opportunity for growth - decades of runway ahead. Assuming that there are no unbanked customers left and all competitors will get those unbanked customers (if any) may not be correct.
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So basically all bets are on the ability of Vaidyanathan. And going by what he has achieved in the past, he does look like a capable leader but unfortunately here we are tying a millstone called IDFC Bank to the neck of his prodigious child Capital First which will only serve to drag down the combined entity. I am skeptical that Vaidya alone can offset all the dead weight that IDFC brings. Lets see how it goes.
Do look up Avtar Monga as well. He is COO and retail head at idfc-bank. CASA has reached 5700 cr in ~2 years of operations, expected to cross 10000 cr in fy19 as per management commentary. Retail assets are also growing fast. Retail funded assets were at 2600 cr in March 2017 and at 7966 cr in 2018 march and expected to reach 15000 cr in fy19 iirc from concall.
Edit : on day one of operations as merged entity, it will have ~45% retail assets out of the total loanbook, already in league of well run retail banks.
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In their presentation I could see that CASA is growing at close to 100 % YoY ( Growing QoQ as well). Currently its at 11 % of total deposit which I assume will acclerate post the merger.
Ratings/Reviews of ~500 customers -
https://www.bankbazaar.com/reviews/capital-first/personal-loan.html
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On the basis of 1. management (v. Vaidyanathan, avtar monga) 2. business (private banking) and 3. valuations (trading at 1.05 times combined Book value), i can’t find a better opportunity than this in the entire market.
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To add to this, Capital first’s android app has 1 million plus downloads and 4.3 rating by 18500 people.