I have the same view as the valuations are out of whack.
Of course, there are limitations of holding company, have to exit at the bank at various stages etc.
But finally there is a price of everything and today’s price of IDFC makes it attractive for 13-15% CAGR over the next five years.
Disclosure : Heavily invested in IDFC, exited IDFC Bank after split
The valuations do not seem to be out of whack; our thinking seems to be out of whack with reality. The fault is not in our stars but us.
Today (ie at present), IDFC and IDFC Bank are operating in a crowded and very competitive market segments. There does not seem to be any differentiating features between IDFC AMC and other AMCs. All other businesses do not seem to be making any difference to valuation except the stake in IDFC Bank. It has to progressively divest its stake in IDFC Bank in next 6th, 7th and 8th years to whatever is allowed under the then existing rules. (HDFC holds a stake of about 21% in HDFC Bank.). The market will take into account the likely stake of IDFC in IDFC Bank in future and price it accordingly. I feel that the price of IDFC is likely to fall further and will not be surprised if it falls about 15% from the present .
IDFC Bank appears to be slightly better placed. Even after issue of small and payment banks licences, there is a natural moat for large banks. But all the banks are running after the same set of people (Urban) (Please do not quote RBI and Govt circulars mandating certain minimum percentage of branches in rural etc areas as everyone knows how banks including PSBs have circumvented these) and offering same services. IDFC Bank will have to differentiate itself and this process may take at least 4-5 years. I think the price of IDFC bank may also correct from the present price. Please check the price journey of HDFC Bank and ICICI Bank (Full conversion of ICICI to Bank) to be able to appreciate likely path of IDFC bank price. IDBI and IDBI Bank price may not be very helpful, being PSB.
DISCLOSURE: Invested heavily in IDFC from IPO time. Regret I did not sell off at 170 and even at 140 recently even though my gut feeling told me to sell. Very difficult to make out whether it is gut feeling or wish fulfillment.
CONFERENCE CALL - from Capital Markets
Targets RoA of 1% for FY2017
IDFC Bank conducted conference call on 27 April 2016 to discuss the financial results for the quarter March 2016 and prospects of the Bank. Rajiv Lall, MD & CEO of the bank along with colleagues addressed the call:
Bank has posted the net profit of Rs 165 crore in Q4FY2016.
Bank is targeting 10 to 15% growth in net profit, while it expects RoA of 1% for FY17.
Bank expect to improve its net interest margin to 2.2-2.3% in FY17 from 2% in FY16.
As per the bank, trading income would be difficult to predict. However, as the current downward interest rate cycle has played out, bank expect the trading income to be moderate in FY17.
Bank expects fee income growth to be 14 to 15% for FY17.
The funded Credit (Net Advances + NCDs) grew 9% to Rs 48474 crore at end March 2016 over Rs 44370 crore end December 2015. Total Credit (Funded Book + Non Funded Book) grew 15% to Rs 53580 crore end March 2016 from Rs 46713 crore as on December 2015.
The bank has about Rs 2200 crore of loans and advances eligible to be classified as priority sector loans (PSL). As per the regulatory guidelines, the bank has to be fully compliant with the PSL targets by March 2017.
The bank has more than doubled the share of non-fund business to 11% of totel credit at end March 2016 from 5% at end December 2015. The bank is focusing on improving the share of non-fund business in total credit.
Bank is also expecting 25 to 30% loan book growth for FY17. Bank proposes to improve the share of retail loans to 20% in FY17. Bank proposes to grow infrastructure business in risk mitigated way in FY17.
Deposits stood at Rs 8219 crore (CASA at Rs 445 crore and Term Deposits at Rs 7774 crore). The CASA ratio of the bank stood at 10% at end March 2016.
The customer base of the bank stood at 16500 at end March 2016 of which about 10000 related to the Bharat banking, 6000 related to consumer banking and 550 related to wholesale banking.
Bank has network of 60 branches (of which 45 branches in Bharat Banking, 11 in Consumer Banking and 7 in Commercial & Wholesale Banking). Bank has network of 13 ATMs and 33 Micro ATMs.
Under Bharat Banking, the bank strengthened its network in Madhya Pradesh (35 branches) and expanded into Karnataka (10 branches).
The Consumer Bank, which established its first branch 01 October 2015, at BKC, Mumbai, opened branches across other metros, including Mumbai, Delhi, Bengaluru, Ahmedabad and Chennai.
Under Commercial and Wholesale Banking, the bank deepened its relationships further with corporates in the infrastructure segment by offering a wider range of solutions, while it also diversified to cater to new clients in the non-infrastructure sector.
Bank will follow calibrated approach in branch network expansion strategy. Bank will track the performance of these branches for next six months before planning further expansion of branch network.
Bank has network of 13 ATM and 33 micro ATM. Bank proposes to improve the share of micro ATM to facilitate growth of transfers and remittances business.
The net banking platform of the bank is live, while bank expects to launch its mobile banking app within a fortnight. Further, the wallet of the bank will be available by July 2016.
The headcount of the bank increased to 2400 employees at end March 2016 from 1759 employees at end December 2015. Bank proposes to raise the employee count to 4000 employee by end March 2017.
The cost to income ratio of the bank stood at 44% in FY2016. Bank expects its cost to income ratio to increase to 51-52% in FY17. Bank continues to be in expansion and investment phase, so expect its cost to Income ratio to take time to stabilize.
Bank is well capitalised with total Capital Adequacy Ratio of 22.04% and Tier 1 CAR of 21.50% under Basel III.
The GNPA and NNPA of the Bank stood at Rs 3058 crore and Rs 1139 crore respectively end March 2016. GNPA ratio was at 6.2% and NNPA ratio at 2.4%. As per the bank, its stressed assets are well provided and do not expect any further provisioning on them.
The slippages in the restructure advances book - power sector mainly contributed to the rise in GNPA ratio in Q4FY2016.
The share of net restructured advances+ Net NPA + Net securities receipts was stable at 5.5% of total advances at end March 2016 compared with December 2015.
This was marked as special situation investment when the price was Rs 155. It is obvious the thesis did not work out. It may help if the people who purported the thesis also do postmortem analysis of what went wrong and what are the learning. Such analysis and learning will help all members improve next time. Sometimes failures teach us a lot.
It looks like even based on recent market cap of both IDFC and IDFC Bank, IDFC may be undervalued.
Rational of investment
IDFC Bank has now partnered with Mobiwik to launch their prepaid virtual debit cards. Even though the partnership is with Mobiwik, the virtual debit card can work on every e-wallet platform. The card can be generated on any e-payment platform and can be used like every other debit card.
The stock is now owned by Multiple MF’s
P/E approx.=20
Ethical management with 2 decades of financial investment and management exposure.
Strong basic infrastructure for monitoring the NPA and loan dispersion
10% stack in ASAI ,ASAI India is a part of the ASA International group, considered one the foremost and finest Microfinance groups globally. http://www.asaindia.in
*Partner with capital float company https://www.capitalfloat.com
*Margin of safety : CMP 56 , Face value : 10 , listed price : 74 i.e (56/74)*100 =24%
*Fundamental comparison of IDFC Bank with Yes Bank / HDFC Bank/ South Ind.Bank / RBL Bank in screener.in
Disc: Invested 12% of my portfolio / This is not an advice for investment /before investment it is requested to do your own research /Inviting the comments to negate my rational of investment
Incorrect
Ashish Dhawan holds stake in IDFC and not in IDFC Bank
IDFC in talks to sell AMC, broking units.If it is True it can be another turning point for the IDFC
source:
Has IDFC sold off the AMC business ?
I am in a great dilemma whether to Invest in IDFC or IDFC first bank. Can you please provide input @yourraj, @samir_brd … I am planning to SIP both or one of them based on outcome. price of 45 + 52 seems attractive… Please advice.
Both are operating in different segment so i think i can’t draw much line which one is better
Revenue IDFC First Bank ( Book Value: 31.91 , Current Price: 51.80 ,CROIC: 93.33 % )
IDFC Bank Limited is a banking company. The Bank’s segments include treasury, corporate/wholesale banking, retail banking
Data Set Mar 2016 -> Mar 2017->Mar 2018->TTM
Revenue 3,649->8,533->8,930->10,601
Dividend Payout % 18%->25%->30% not any Data in TTM
Finance margin is compressing Cost of Getting capital is lower as Bank have CASA accounts
IDFC Ltd ( Book Value: 70.93 , Current Price: 42.95 ,CROIC: 37.09 % )
IDFC was operating as an Infrastructure Finance Company, i.e. financing infrastructure projects in sectors like energy, telecommunication, transportation, commercial and industrial projects including hospital, education, tourism
OPM Is better , Dividend payout is not as good as IDFC bank ,But has god stack in IDFC Bank
It is better available PE 11 as compare with IDFC Bank Pe=27 )
I have initially invested in both but due to better opportunity i exited IDFC Bank but holding stack in IDFC Ltd
One must evaluate at what Margin of safety One is going to invest in the Stock .Banking sector sector has many more good players to invest Rather to stop at IDFC Bank But IDFC Ltd Is operating in NICHE Field . my Views may be biased as i am invested in the IDFC ltd
But i personally thing one must have a Process to select any security and One Process may not be suitable to all the stocks You may need to create separate Processes
I love to hear Your Rational to Invest in these two …
Regards
@yourraj, I actually like the merge of IDFC bank with Capital first. I have been following capital first for very long time but never bought it. Since its merged now I see a great potential as combined entity. Growht is not a problem for capital first. it all depends on how the bank improves CASA . They have a very good process for loan and lot of customer do come back for loan. ( I see it as direct competition to bajaj finance ).
My confusion is mainly because IDFC holds 40% stake in the bank, comparing valuation isnt IDFC investment better ?
old news worth sharing
small article regarding Bank Frauds
idfc Ltd Update
IDBI mutual fund business with aum of just 5300 cr sold for 215 cr…approx 4%
Keeping same valuation parameter IDFC mutual fund with aum of 1 lac cr would be valued at 4000cr…that is approx 25 per share. With cash on hand of about 6 per share we are getting 40% holding in idfc bank for almost free.
Is this correct way to look at it?
Disc. Invested in idfc
@narenarora IDFC’s AUM business can be valued (4% of Rs 94000 AUM) at Rs 3760 Cr; 40% stake in IDFC First Bank (MCap Rs 20714 Cr) at Rs 8285 or either Rs 6628 (calculated at IDFC First’s 52 week low); Cash at Rs 742 Cr. IDFC can be valued between Rs 11130 Cr to Rs 12787 Cr as against its current Market Cap of Rs 5419.
Holding company discounts are between 30 to 50% in India, taking it at the median level of 40% holdco discount, IDFC can be valued between Rs 6200 to Rs 7200 Crores with IDFC quoting at 20-30% discount. The market is not valuing IDFC’s potential. The trigger for IDFC would be if there is a reverse merger with IDFC First Bank and a potential sale of the AMC business, and can expect a 30 to 50% upmove at that point of time. At CMP of Rs 34 there is very minimal downside
IDFC equity AUM is very low at around 15000cr only (15%) for which you can assign 5-10% of AUM but for the debt, it needs to be assigned much lower. hence I think that IDFC AMC valuation may not be more than 2500-3000cr and you need to adjust for holding co. discount.
@ethanshunt As per the Q2 investor presentation, equity AUM is 28% of the total AUM of 94000 Cr. As per the ET newsitem, HDFC AMC and Reliance Nippon trade at 22% and 12% of their respective AUMs.
@Srinivasa_Ramanujam thanks for checking and correcting me; I didn’t check the IDFC arbitrage fund which is quite significant and comes under equity category with an expense ratio of above 1%. in that case, yes IDFC look a good value buy
