IDFC First Bank Limited - First Bank Preference for Long Term Investors too?

Stock Opportunities
4101

When you buy an old company, it will keep giving nasty surprises for quite some years inspite of a thorough due diligence. Ask Tatas about Air India.

I am reasonably confident that you will get a good return on your balance one third holding of IDFC. The clouds should clear in this year or maybe next year. Investors should keep patience if fundamentals are unchanged. When the price keeps falling for a long time , it becomes difficult to remain invested and that drives the counter further down. But remember, the day you feel that it is underpriced and a strong buy, there would be hundreds more who would also feel the same way thereby start the process of pushing the price up.

I feel at this juncture IDFC shares are shifting from tired hands to stronger hands. And strong guys will make sure that they buy at a really low level even if they have to sell intermittently to keep the price low by keeping sentiment low. Once the ROA stabilises, and the quarterly news turns positive, the big operators will also change their direction.

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4102

A few quarters ago on one of the quarterly calls an analyst asked -why donā€™t you publish end of quarter updates ?

VV said - we anyway publish results a few weeks so why to do extra work and first publish eoq updates and then financials also. Instead just focus that time on business.

This was when everything was going well and profits growing handsomely.

A few quarters of poor profits and suddenly we have eoq updates. Specially since these are good updates.

Tells me that the stock underperformance is bothering vaidya. This eoq updates is gives him enough time to build up the stock price and raise more capital at higher price hence boosting book value. Expect a capital raise in second half of financial year with two quarters of solid performance.

Dis closure: invested for a couple of years but watching for longer

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4103

Yes even i do remember those times when he has said few things and roll backed on his word. Especially when he said heā€™s going to focus on fully retail and they donā€™t want any corporate loan or whatsoever same like the eoq updates. But i will give him some leeway as managing a bank with legacy is entirely different from running an NBFC and i am willing to wait till FY 30 to see what is in store for IDFC first.

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4104

some historical perspective on VV statements
On C2I
Merger to FY22 - our C2I long term target is 55%
June-september 23 quarters - we might have to live with 60% C2I
December 23 quarter - we aim for 65% C2I in longer run

on home loans and retail book
Till FY22-23 - we will focus on prime home loans
when asked about security of loans - our retail book is secured from cashflows (means no security cover)
we have prestine quality of retail loan book which we are building after merger
(took vodafone write off and then wrote it back and shifted to retail liabilities)
same happened with two other accounts where he took provisioning and wrote it back to take in retail book ( you can check all this in writeoffs of retail book in annual report)

on fund raise
we will not need another fund raise for next 2 years - and comes back for fund raise every 3 quarters when Tier 1 ratio falls below 13-13.5 which mostly happens in june because RBI changes risk weights in june and hence july -sept are periods where they usually raise funds

JLG and micro loans
since most of the security cover is just cash flows (which is usually payment mechanism and its not treated as security by most banks) hence its retails loans have very low security cover - though VV claims we have robust underwriting - but this is purely foolishness to say that cashflows backed loans are fully secured. Security only comes from asset security.

Philanthrophy and ESOPS
Though VV has been seen giving out loans as philanthrophy - but he amasses more than that from ESOPS when share prices have fallen. This can be cross verified with all the esop execution prices and vested prices and all future esops pending to be given. Philanthropy karo 4 lac share ki - esop le lo 10 lac share key - kaam dhandha apna.

no hard feelings for all the IDFC investors - this was one of my high allocation portfolio stock from 2020 to 2023 June - Sept and exited due to C2I goal post change which doesnt goes well with overall future of business.

most investors in thie counter focus on PAT - while the BV per share growth in this counter has to be looked at because of dilution along with PAT growth.(this is ofcourse to be seen with RoA and RoE and GNPA and NNPA and writeoffs and what not)

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4105

Hi Vineet,

I looked in detail into each of these claims.

On cost to income ratio - The management has been unable to bring this down as much as it earlier claimed. Even now I am not sure about the trajectory of this metric. Here is an excerpt from an interview with ET in January 2025

As per your guidance, you aim to bring the cost to income ratio at 65% by Q4 FY25. Currently, it is 71%. Do you think in the next quarter you can achieve this guidance? Also, what are the key changes you are likely to make in order to achieve this?
V Vaidyanathan: As far as cost to income ratio is concerned, we are running behind in the sense that it is higher than what we anticipated or what we guided and we agree with that and we admit that. The thing is th ..

Read more at:
V Vaidyanathan | IDFC First Bank: Excluding MFI, want good asset quality along with 20% growth for rest of the book: V Vaidyanathan, IDFC First Bank - The Economic Times

Moving on

I could not find any evidence in their annual reports from FY21 and FY22 of them somehow using the written back Vodafone exposure for their retail loan book. The bank took about 5,250 crores of losses due to provisions and write offs in these two years. And as a result the EPS was very low (0.21 in FY22). So I think they accepted that these were very bad years for them and did not really try to hide their poor performance.

I agree to this. A shareholder has been diluted by about 20% from FY21 to FY24 due to the constant fund raises by the bank. Hopefully the pace of such dilutions will reduce now. But the size of the total assets has also gone up by more than 65% in the same time from 163,072 crores in March 2021 to 296,210 crores in March 2024.

It is true that he gets a lot of ESOPs. Personally, I prefer that. It ensures the interest of the management is aligned with me as a shareholder. He is getting an annual compensation including cash and ESOPs of about 11 crores (as per Page 206 AR for FY24, he already owns 6.44 crore shares in the bank). May be the bank can save a few crores by paying him less. But I believe this is trivial. What he does with his ESOPs once granted is up to him.

Letā€™s see what is the total impact of the recent spike in NPAs in microfinance on the bank. My key metric to watch out for is the EPS going ahead and whether the bank manages to grow it consistently year on year.

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4106

I have been a long-time critic and have been pointing a simple issue for a long time. It has a key issue- it does not make money. The truth is this bank was always a mess from pre-merger days.

If you want to total up the PAT it has made since merger, these are the numbers:

FY19 (1944 cr), FY20 (2864 cr), FY21 + 452 cr, FY22 + 145 cr, FY23 Profit 2437 cr, FY 24 Profit 2957 cr, FY25 9M +1221cr = Sum is 2404 cr.

I talked to some sell side MNC Analyst (highly regarded). He said Iā€™ll tell you a simple thing ā€œif a bank does not make operating profit, then it is doomed. Because even the best of banks will have credit costs. He said he studied this bank and gave up on Lall long ago. Pre merger they were posting profits through some treasury. Bad loans did not come out then.

On merger, the Operating Profit of this bank was 0.5%. Now normally any bank will have 1% credit cost, for these guys it was much more because this bank had the whoā€™s who of the industry (Dewan 600 cr, Reliance Capital 1200 cr, Cox and Kings, CafĆ© Coffee Day Mumbai entry point 1100 cr, Vodafone idea 3244 crore 20,000 crores of such loans) so the credit cost was even higher. So 0.5-1% (even normal), you have NO PAT. It was basically dead-on-arrival. I donā€™t blame him for dilution, even if a genius were running this place, they would be raising capital. They need to grow to fix their issues. And they donā€™t make ROE. Itā€™s a circular problem fixed only by capital.

He told me a simple thing. If ROE is 3-4, you simply have no choice but to raise capital. Itā€™s as simple.

And here is the funny thing. Just because you HAVE to raise capital, does not mean you will GET capital. See what happened to the one that went into morat. Their CEO tried hard to raise capital. He couldnā€™t.

I am really surprised that VV is able to raise money from institutional investors 1.6-1.8 times four times. This is really insane. Why do investors give him money at these valautions for a bank that makes nothing?. The real risk is not that he will raise capital, the real risk is that he cannot.

Even now, after, Trump, war, MFI, reduced PAT in 9 months, ROE at 2 or 3, still quoting 1.2. WHY??? Hello. What if the stock went down to say 0.6 book and it is capital time?

And assume he doesnā€™t get capital? Has to slow down growth. That has its own implications. Someone please educate me.

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4107

Hi Aaina,

Thank you for doing this detailed work and keeping us honest. Many of us are just carried away in attacking, me included, look at my previous message I posted a moment ago.

Agree that on cost to income ratio they admitted. am quite happy with their liab franchise its best in class have used other banks this one is the best. Liab franchise takes long to build. Think the income reversal from bad loans and covid etc may have taken its toll I cant tell much.

ā€œThey did not hide anythingā€ I agree. Except MFI I donā€™t think (until 2024) there was no issue anyway so there was nothing to hide. See the credit cost numbers.. it was 0.9% of assets in 2024 for a NIM of 6% that was super great.

ā€œI agree to this. A shareholder has been diluted by about 20% from FY21 to FY24 due to the constant fund raises by the bank. Hopefully the pace of such dilutions will reduce now. But the size of the total assets has also gone up by more than 65% in the same time from 163,072 crores in March 2021 to 296,210 crores in March 2024.ā€

I too agree, Aaina, but the real risk is that these crazy circumstances (Trump, war, low ROE etc.) can they? What if they are not able to? Remember institutional equity people really do a lot of research. Here we really have to depend on VV to raise. This bank has no choice but to raise capital till they reach 15% ROE.

ā€œIt is true that he gets a lot of ESOPs. Personally, I prefer that. It ensures the interest of the management is aligned with me as a shareholder. He is getting an annual compensation including cash and ESOPs of about 11 crores (as per Page 206 AR for FY24, he already owns 6.44 crore shares in the bank). May be the bank can save a few crores by paying him less. But I believe this is trivial. What he does with his ESOPs once granted is up to him.ā€

Here I didnā€™t like Vineet comment. It was kinda unfair. He is getting 5 cr as per AR as fixed CTC and about 6 cr in ESOP. Thatā€™s not too much. See IIB and other peer CEOs. And like you said what he does with the money whether philanthrophy or spends it its upto him. We donā€™t have to bother.

Asset quality, as I said before, except MFI, there is no credit loss issue from 2019 to 2025. One odd MFI it can happen to anyone.

My concern is that the Bank does not make money (am not saying VV fault, its like this one from beginning.) we have to see if he can take it to 5 digit pat in 5 years. I somehow have faith as look institutions are backing him and giving him equity every year. Hopefully they know something more than us as they do much more research.

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4108

A question to you, there has been a significant increase in FII and DII, and even public stake in this counter, especially from September to December 2024 . Please note that it was on a decline before that.

I am curious what is it that is making these guys buy so much, it canā€™t be true if the bank is so doomed as you rightly point out. It canā€™t be all technical either.

Only reason i can think of, besides an optimism on turn-around in near future, is that financials and few other counters are driven by domestic consumption hence the loading up, the money is coming from riskier export driven counters in the current tariff context.

4109

That change in holdings is due to reverse merger of IDFC Limited and IDFC First Bankā€¦ shareholders of IDFC Limited are now direct shareholders of IDFC Firstā€¦
Nothing else changedā€¦

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4110

294ece74-f8f7-45a9-9f85-8084c237633d.pdf (745.0 KB)
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customary annual dilution is here againā€¦

4111

Number of shares of idfc first bank is so high that I think it need so much strength to go up.

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Donā€™t want to speculate but if the Bank is raising fund when stock price is much lower than last fund raise then probably they are in troubleā€¦
Are they going to post a loss in this quarterly resultā€¦?? :thinking:

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I donā€™t think they will, because i remember VV saying never ever again they will post a loss. And still if they do, then stock is going to hit lower circuit. And thatā€™s y they are raising capital before results i think. I like VV a lot , but sometimes the things he says, it usually goes the other way and finally he gets humbled. I just feels he should do his job and stay out of the limelight like the other bank CEOs who donā€™t come every quarter to media and justify the results etc. Y canā€™t he be calm and do his things? Anyways to each his own.. !

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4114

Retail liability has been always a strong area for the bank. Need to track how it performs going forward after this.