IDFC First Bank Limited


(anshuljai) #223

Customer retention in banking sector is usually high. Closing an account is difficult hence many banks use different strategies to draw initial customers. Kotak also used to give 6% pa before everybody took notice. I think they will gradually decrease the interest rates once they reach their desired goal. But from the looks of it, 7% interest rate, along with the slab is aggressive.
In terms of loans, Capital First has customers paying higher interest rates when compared to other banks; hence IDFC has that margin to play with deposit rates. Only growth in CASA will tell us whether this model is working or not :slight_smile:


(vaibhav) #224

What you mentioned could be a reason, and the number (not the percentage holding) of public shareholders in idfc first bank are as high as any bank stock (icici, hdfc, YB, kotak…)


(sgkfinance) #232

Given current CASA is ~6500 cr, that’s a steep goal. I called customer care after no response to my website registration. Tele-banker informed that they weren’t able to pursue leads from the website, took my details, assured that I’d get a Visa Signature debit card for my savings account, and promised a response within 24-48 hours which has almost passed now. Still waiting.


(Amit Jain) #239

Zerodha is a discount broker. A trader will benefit the most. For an investor, security of equity in demant form is an issue. Strange but true. I am inclined towards an established bank, for that very reason.


(Cshar) #240

Morgen Stanly came out with target price of 30, why there is so much passimism, are we forgetting some scuttlebutt or Vaidhyanathan is given too much hype. IDFCfirst has huge equity of 475 cr. Growing even at 20% CAGR looks a challenge here if any hidden NPA comes out from current Infra loan book.


(Pratik Chandak) #241

True, Vaidyanathan might be given too much hype… but IDFC First Bank is trading at 1.3 PBV (BV of Rs. 38.3 per share as of Dec 31, 2019 and CMP of Rs. 50 per share today) which is one of the lowest… and Morgan stanly is targeting the price of Rs.30 which is below the current book value… that too when company has management which has prooven track record…

Now about growing… What I have observed is few investors are misunderstanding growth as growth of loan book… Yes growth of loan book can lead to overall growth but that is not the only way… What I am expecting for next few years is, the conversion of wholesale asset to retail… If retail portion of the loan increases, then yields will increase… looking at the track record of Mr. Vaidyanathan, I don’t think its a big challenge… along with this, a growth of CASA (I am considering a slower growth in CASA) cost of funds will either remain stable or decrease slowly…
so Increase in yields along with decrease in cost of funding will increase the NIMs and NII…

One has to also consider that synegrgies will take place as the time passes… which, I am expecting to be reflected in to lower operating cost…

Overall this will increase the profits and return ratios… while keeping the Loan growth either slow or zero…

Also, one have to consider that, it is difficult for any bank to evergreening/window dressing the retail loan…

Now, if I comeback to valuation by morgan stanley, they have assign a PBV of 0.7… But I feel the bank which has management with proven track record, and tremendous growth opportunity, should not trade below 2 PBV… Even Yes Bank in the current time is trading above 1 PBV…

attaching the reoprt below by morgan stanley…
IDFC Bank.pdf (3.5 MB)


(Cshar) #242

If you assign BV if 2, market cap will grow to > 30K CR. Current business doesn’t justify that valuations atleast for 2 years. We need to wait for atleast one year to see how IDFCfirst is transforming.


(Pratik Chandak) #243

True, assigning a multiple of 2 is not the right thing for IDFC First Bank right now, and at current market price of 50, it might be rightly valued temporarily… assignment of 2 PBV is difficult to forecast currently.. but assigning a multiple of 0.7 is also not the right thing… specially to good management, their vision and proven record…
It should trade in the range of 1 to 1.5 curently untill we see some certainty in earnings which will be clear in next few quarters. I assign a very less probability to scenario where market will rate it to 0.7


(grohal) #244

50 page report with elaborate comparison with peer group by Morgan Stanley. But it is amusing to see there is no comparison of NPAs ?! Is it because they couldn’t get the data on NPA?
Let me highlight their some favorite stocks, Axis bank has 5.5%, ICICI Bank has 7.5%, SBI Bank has 8.5% Gross NPAs!!
While the stocks they hate, RBL Bank has 1.5% and IDFC First has 2% Gross NPAs. So comparison will not look good on a chart that’s why better to skip this data.
Also, they were overweight on Yes Bank with a target of 400 till last year, what happened there!
Morgan Stanley revised RBL Bank rating to Sell in Oct 2018, Stock is up 35% since then!


(aruncph) #245

Its too early question Vaidyhanathan. Whats undeniable is his brilliant track record, especially how he built Capital First. At the same time, IDFC bank comes with a huge baggage. A target of 30 is a huge cut indeed and I dont agree with their PBV.

There will be short term pain. I view this entity as a 3+ year story. It may take minimum 10-12 quarters to put this bank on the right path.

Disclaimer: Invested. If this goes to 30, I will happily add more.


(Investor_No_1) #246

Can u pls elaborate on what exactly is the security issue for stocks held in dmat form? I think now statements are given by depositories as well…thanks


(Amit Jain) #247

I have heard instances of the number of shares changing in the online statements provided by discount brokers. Disputes mostly get resolved, but what if there is a fraud. There have such instances as well, I think in IndiaInfoline.

I think demats with banks are safer for coffee-can kind of investors. Better still, get them rematerialized, if u r gonna coffee-can them anyway.


(vaibhav) #248

IDFC first bank features in top 10 Forbes Indian banks for 2019.
"The list is largely based on customer satisfaction instead of balance sheets and PnL.

Banks were rated on general satisfaction and key attributes like trust, fees, digital services and financial advice."


(vaibhav) #249

Following is a screenshot from capital first fy18 annual report showing that majority of the assets and liabilities mature in 0-2 yrs. The maturing debt should get replaced by cheaper funds (150-180 bps cheaper as idfc first bank’s cost of funds is cheaper by that much amount).


(Koushal.vv) #250

(Pratik Chandak) #251

How much importance should we give to ROE for Banks?

Asking this, because a banks has very high leverage and ROE is a function of leverage. ROE is manipulated easily by changing leverage. So, should we give much importance to ROE given that bank has high leverage?


(Tanmay Jagtap) #252

Look at RoE and RoA both


(nagireddy1991) #253

It’s a very much important metric in evaluating banks, prefers banks with high roe and lowest leverage, high leverage erodes the book value even there are small percentage of NPA

This is where ROA(return on assets) comes into picture, banks with high ROA with low leverage can have same ROE as bank with low ROA and high leverage

So ROA can be considered important metric than ROE, as ROA increases ROE increases

ROE = ROA×(Debt/Equity)


(Hitesh Patel) #254

IDFC First Bank has broken out of a cup and handle pattern on daily/weekly charts. Potential target could be 65.

disc; invested based on technical pattern with a strict appropriate stop loss.


(pkk123) #255

What’s the stop loss? Since you are already discussing your trade and possible price target, I hope disclosing stop loss isn’t an issue either.