Mr. Vaidyanathan expects for the bank to reach double digit RoE in 3-4 yrs. What we are getting is almost an ever-lasting company, a new-age, clean (no npa issues) bank with a very well respected CEO. There is deep value in this stock in my humble opinion.
Disc: invested in both IDFC ltd n capf.
I partly agree with you here. However, there is no easy way to increase deposits other than the basicsā¦and basics, at least at the moment in India, is good network of branches. Even if they donāt want to (I remember Mr. Lal was of thought hat he would not increase branches and use technology etc. but it didnāt result in expected increase in deposits), they do not seem to have a choice.
No NPA issues? That seems like a tall statement to make. Rajiv Lall has been saying āall NPAs are provisioned forā for a few years now but we still see fresh slippages every quarter. I do not trust his word at all. Only after Vaidya takes over we may get the full picture and may be not even then because IDFC has a huge legacy book in the most troubled of all sectors - infra and unpleasant surprises will keep popping up.
Check the video againā¦ He never said clean book for IDFC First Bankā¦ He said Clean slate for IDFC Bank as far as Infra sector is concernedā¦
CNBC Interview Video: 7:45 - 8:10.
Infra book is Rs 25000 cr vs Rs 102000 cr total AUM.
Disc: Invested
Assets from restructured book were being categorised as NPAs. That has also finished. They recognised NPAs of arnd 12000cr iirc since
becoming a bank. Now they expect some npas to become standard assets. Things should be good on npa front going forward barring any negative surprise.
Branches are required for 2 purposes:
1 .Majority of population still requires to have something tangible and visible, they want some place to bank. Taking those customers digital is the next step.
2. Senior persons still prefer physical interaction vs digital interface. And these are guys having savings that translates into cheap deposit.
Letās not forget that India is still a cash economy and having purely digital presence may not help that much.
True. Loans sanctioned in Dr. Lal times still carry some npa risk. As this very first post in IDFC BANK thread describes Dr. Lallās promises in 2015, he was over enthusiastic then and has been unable to deliver on them. That has been, in my opinion, major reason for undervaluation of market price of IDFC BANK.
Now that he is stepping down and Vaidyanathan sir coming in, we have bright chances of not only re-rating but also stellar long term performance of the bank.
There is plenty of competition in that approach. If IDFC First is going to be run of the mill kind of a bank, then I am happier investing in HDFC for the next decade.
One needs to have an holistic approach.Opening physical branches is one of the aspect, need to keep other angles of investment in consideration also. Letās not tend to reject a thesis only by having a very narrow view.
I agree but whatever IDFC can do - technology etc - others can do as well (remember kotak 9-11). On top of that, Vaidya has already mentioned that ā1000 branches are table stakes in this gameā so the time and expenditure of setting up these branches will be there. Only positive is that its trading near book value compared to some other private banks which are at 2-4 times. But then IDFC will take 5 years to get to the RoE of these banks. So whatās the big advantage of picking IDFC over others? I am open to hear your thoughts. Thanks.
Bandhan trades at 7x current book value,HDFC at 5.5x etc.
As Capital First is now officially merged with IDFC Bank, request admin/ moderators to consider merging or using a single thread for both companies moving forward.
Thanks
Yes that is the question one has to ask himself when investing in a compny. My own answer to that will be
Thanks
Disclosure : Invested
Agreed to @dharmeyshashar , Management of Mr.Vaidyanathan is like brand value which is not being considered into valuation. This minimises the downside risk. Also, no one can expect instant results after the mergerā¦ as Vaidyanathan said, they have just delevered a baby and it will take time. We can expect slightly higher operating expenditure in the first year (Which I feel is being anticipated in the price).
As of now, I will minimise the weightage to expenses and will increase the weightage to see how they manage to convert asset side of CAPF into liability side of IDFC First Bank. It is important to confirm if they manage to reduce the cost of borrowing or not.
In a country where online retail companies like Amazon are considering to strategically invest in offline retail companies, like Future Retailā¦it is impossible to ignore the benefits of a physical presence or a branch.Having said that branch operations can be streamlined using technology & the opex may be optimised. Already some of the steps to put in a payment solutions for good CASA have been thought through for ex. tie-up with Zerodha for a trading account. More steps to encourage remittance, and higher rates to attract deposits may be in offing. Being a customer of ICICI Direct, I will welcome an IDFC Bank-Zerodha account as a more viable/cheaper offering.
Having said that building a strong CASA base, requires a lot of thought & a robust value proposition/innovation in areas like payment solutions, remittance etc. And it is easier said than done. As a pioneer in this area,with his ICICI Bank retail experience Mr. Vaidyanathan has the expertise and the drive to do it. Only time will tell how successful he could be.
As a customer of HDFC & ICICI Bank, one thing is for sure that in terms of technology & customer service,they have remained stagnant over the years. So there is always an opportunity to offer a better value proposition. I find banks like Kotak have done a better job in these fronts.
Discl: Invested
