Ya in October 24 itself.
c83a330b-9d70-490f-b374-fb5d6bc5c223.pdf (1.0 MB)
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huge fund raise = worse than expected resultsā¦??
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warburg pincus has played it well thoughā¦exited at right timeā¦re-entered at right priceā¦
Lot of preferecial allotment. Is it worry sign?
Listen in on CNBC TV18 discussion first
Then, listen in on NDTV Profit discussion, some difficult questions here - this was 4 hours later (based on video published time)
I donāt want to put words in the mind, but it seems like there are unspoken insights if you can take it away.
There are business owners/operators, there are journalists and traders / investors (tracking every single dayās stock listing value). Whether (and what) you make anything of these insights (assuming you believe there are insights) is to each their own.
People who operate a business or conduct their investments in long-term (30-40 year time horizon) business-like manner, may have a much different perspective. It reminded me of a quote that is often attributed to Warren Buffett:
āI am a better investor because I am a businessman and a better businessman because I am an investor.ā,
And what Robert Hagstrom wrote in Warren Buffett way (Amazon India)
The concept of intelligent investing is that by buying shares
in a company, you should act like the owner of the business,
not the owner of a piece of paper. That means you need to
understand the companyās operating fundamentals.Diversification is only required when an investor does not
know what they are doing. Very few business owners are
comfortable and experienced enough to operate a number
of companies at the same time. So too, an investor should
act like an owner and buy shares only in companies which
are thoroughly understood.
P.S: I am not a SEBI / or any regulatory body registered investor / investment advisor / fund manager / etc. I maybe holding related investments, I may have exited related investments, I maybe buying related investments - please do your own research.
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The only surprise here is the amount of 7500 crores. When the investing price is Rs 60 and quite likely to go up in next few quarters, the normal prudence on the part of the bank would dictate that a limited amount say 3000 crores was raised. Additional amount could have been raised a year later at a higher price.
It clearly shows that it is Warburg Pincus which is perhaps taking advantage of the low price to make a bigger killing. However Nobody can take exception to this, as anybody can acquire shares at similar price right now.
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Seems like VV has learnt some lessons and Warburg returned only because he would have agreed to changing certain ways of operating which till last year he would have been more adamant on (and thatās why they had probably exited).
A CEOās primary job shouldnāt only be about the share price but I feel it canāt be neglected to the extent that VV has done in the past. Today when VV wanted capital, Warburg would have made him agree on their terms and thatās why bigger capital (much more than he needed) and a board seat (so that they have their influence).
Hereās what I conclude from this capital raise and his interviews:
- Heāll be more cognisant of profitability and the valuation in the coming future
- MFI and NPAs will peak in Q4FY25 as told by him
- Hopefully better quarters ahead and share price should give a good opportunity for long stuck investors in probably 2-4 Qs
At the same time, extremely unhappy with one of the worst dilutions even after 16%+ CAR
PS: Not a buy sell recommendation. Iām invested since long
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In neither of the interviews they asked Why CCCPs and not a QIP. What might be the reason?
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One amazing article i read.. think Harvard.. has put out great research on the subject āthe founder is the brandā. There are many examples..
This is very true in this case. If you notice he does not come for any other matter other than the bank, (unlike past generation of bankers, what you wear where you go for holiday etc.)
I truly believe that a lot of people trust him. I feel that early stage bankās required proper explaining when for example the bank is also bad loss for six quarters fter merger, and then Covid. Even after that they were posting pat thru some treasury instruments.
Would you leave deposits with the bank posting losses? I would never. Never. But here you are posting losses quarter after quarter for six quarters and deposit kept piling up. (Its not rates, even today mid tier banks pay same rates as this bank). So a credible leader process comes every quarter says Iām here things are fine here are the details is very useful in my opinion.
As I told you that thing this bank have been always an issue (see my previous post). This bank is born deformed, a heavy asset book of 1 lac cr with no deposits and operating profit and no pat. Wow. You need a leader to take the bank thru this phase. I think once you become an institution like say ICICI or HDFC, start posting say 10000 cr of pat for example, then does not matter. Ps: A lot of depositors know nothing about the bank but trust him. My neighbour opened to accounts his and his wife only for this reason.
For the same reason if you are investing pl be aware they donāt make money. Sorry to say this to idfc fans. Thatās the truth. p/b and all investments coming only because someone believes the promises.
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Tiger does not change its stripes. He wont change.
On a more serious note, someone had to stand up and build it.
They probably believe in him.
Also bias.. imagine the conversation in their ic .. āPast experience with founder 9 x. Hes raising funds again. Lets go.ā
Else many other banks are going cheaper and would give a right hand to raise capital from these well known funds.
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I really do not agree with Mr. Vaidhya. 
First, he has diluted equity at par with the book value, which means shareholders are not receiving any value from these dilutions. Now, he is planning another 15% dilution at the book value. 
It would be much better if he focused on growing this bank slowly, reducing operating expenses to between 50% and 55%. Increasing the Return on Assets (ROA) to between 1.5 and 1.8 and the Return on Equity (ROE) to 15% would be a more effective strategy. 
If this is achieved, the market would likely value the bank at two to three times the book value. Then, diluting equity at three times the book value would be beneficial for shareholders. 
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Yeah even i agree. Like deep_sukwani said, it made sense to watch the videos in the order he mentioned. he was completely agitated when Sujeet of NDTV kept asking him about equity dilution ( only channel to ask him on that ) i really donāt know what Mr Vaidya was thinking when he raised so much equity at also at book value! he doesnāt care because he has made his money through ESOPS and he doesnt mind the gradual climb in share price. what about retail share holders who believed in him from capital first timeā¦? Imagine those who wants to retire in a year or two. Its really upsetting to know that the share price is going to be 200 rs only by FY29 and that like he mentioned he will come for capital again after 2 1/2 years. Not even 3-4 years. This is madness and shear waste of opportunity cost. I really agree with lot of people who warned of Mr Vaidya and his tactics.But I canāt blame VV either also because his hands are tied but its the investors who have to cut their losses and move on. Anybody willing to give their 2 cents..
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Just wanted to put a table showcasing Dilution of equity at ICICI bank over 30 years.
Over 30 years bank has tripled its share count while almost 50x growth in EPS. Remember ICICI suffered hugely in 2007-2008 period with massive losses in personal loans. Despite this they were able to grow EPS in a couple of years..Just 2009-2010 was decline in EPS.
ICICI Bank: Diluted Shares Outstanding and EPS (1995ā2024)
| Fiscal Year End | Diluted Shares Outstanding (Billion) | Diluted EPS (INR) |
|---|---|---|
| 2024 | 3.566 | 57.33 |
| 2023 | 3.552 | 44.89 |
| 2022 | 3.538 | 32.98 |
| 2021 | 3.421 | 23.67 |
| 2020 | 3.283 | 12.08 |
| 2019 | 3.218 | 12.18 |
| 2018 | 3.241 | 13.57 |
| 2017 | 3.213 | 13.68 |
| 2016 | 3.212 | 14.34 |
| 2015 | 3.213 | 16.69 |
| 2014 | 3.187 | 14.71 |
| 2013 | 3.183 | 12.44 |
| 2012 | 3.178 | 9.61 |
| 2011 | 3.144 | 7.68 |
| 2010 | 3.075 | 5.98 |
| 2009 | 3.067 | 6.28 |
| 2008 | 2.921 | 9.42 |
| 2007 | 2.469 | 8.54 |
| 2006 | 2.172 | 6.72 |
| 2005 | 2.017 | 5.43 |
| 2004 | 1.725 | 4.31 |
| 2003 | 1.691 | 3.40 |
| 2002 | 1.688 | 3.10 |
| 2001 | 1.686 | 2.85 |
| 2000 | 1.684 | 2.60 |
| 1999 | 1.682 | 2.35 |
| 1998 | 1.680 | 2.10 |
| 1997 | 1.678 | 1.85 |
| 1996 | 1.676 | 1.60 |
| 1995 | 1.674 | 1.35 |
Note: The EPS figures are in Indian Rupees (INR) and represent diluted earnings per share.
Sources:
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IDFC has been a let down for people who are investing solely on CEO image. The fact that he did exit at the top is not to be ignored while we he kept giving rosy pictures of how great franchise the bank has become. As I come to understand competiting with large banks is not easy for small banks. HDFC, Axis and ICICI have all the sweet deals in commericial sector and hence only option for IDFC is to go down the quality curve to ear higher NIMs and fees. It is difficult to believe bank does not have problems while rasing 7000 cr of captial at book value.
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You just educated everyone. and youāre right. Obviously the counter point is that āsoon, we will be making x,y,zā. The question is about the business modelās future viability not its current crappy profitability. Investors, whether PE funds or private investors are jumping on that.
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As per my calculations, this current round of capital raise should suffice for them till FY28 if they grow the loan book at 20%. Of course this will hold, only if there arenāt any other negative surprises/ industry wide issues that increases the credit costs, like the MFI problems. This is what Mr. Vaidya also mentioned in the video i.e around 3-4 years. By then, their ROE should also inch up to 12-13%, which should allow them to raise capital at a higher P/B. I donāt recall him mentioning about capital raise after 2 1/2 yearsā¦
Also, I would like to know if other than the dilution in EPS, does the equity dilution affect the shareholder in any other way? Isnāt that the reason, banks are valued on BVPS and not EPS?
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Equity dilution reduces your % of ownership of the company. It lowers not only EPS but also BVPS, and your share in all other economic resources of the company.
Since they have raised at price marginally above the book value, the bvps has actually increased post the capital raiseā¦bvps has not reducedā¦
Looks like VV moved faster than I thought on the fund raise. Literally within 2 weeks since my original post on a possible fundraise.
Thereās been a lot of debate about the fundraise: Why now ? Why this much ? etc etc.
Let me speculate on this
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I think he wanted to raise less, Warburg and ADIA pushed him to do more. Why? because if they can get hold of more shares now, and they are confident in his ability to deliver, then WHY not. So he must have gone with a 3-4K crores proposal and they scaled it up and said 7-8K crore
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The contrary is that he could have walked away. But other interested investors may not have offered the 60/- conversion Price for their offer of the 3-4K crores QIP and it may have been much lower specially because MFI credit losses are still going to hit him in Q4 FY25. They would have been thinking if he gets desperate we will get a better price.
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So VV goes back and tells Warburg pincus , Ok i will do 7-8K crores but only at 60/- . Why ? This gives him a talking point that the fund raise is above book value (which is 53/-) and it is non dilutive based on book value. Also - even if Q4 is bad, which he is already broadcasting, he can front load more of the losses using the fresh equity raise and blend the good news to say we have done the fund raise and now we are good for 3-4 years. The focus goes away from the MFI cycle.
This helps him manage the Q4 results and investor call . Then he puts in all the effort to get Q1 right, which is highly likely ebcause
a) RBI has lowered repo rates
b) RBI has lowered risk weights on unsecured loans to NBFCs
c) more liquidity in the system which brings down his deposit costs
So he has playbook from Q1 FY26 onwards .
Discl: Invested since last couple of years, watching for much longer
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Well said! This is what he has been doing for past 6 years. And indeed Q1 results will be good. Waiting for 4 digits PAT soon at least by Q3FY26. Still holding and waiting patiently at least till FY30 if all is well. I know asking for dividend is a big thing but at least Iām hoping something at least by FY27. Some incentive to hold this stock. Fingers crossed!
A view (objective or not, to each their own) at capital raise Why IDFC First Bank keeps asking for more capital
Another good way to approach the argument of comparison with established institutions like HDFC Bank would probably be to look up HDFC Bankās annual reports since Mar 1996 available here HDFC Bank Integrated Annual Report 2019 - 2020 (scroll down to Archives) and inspect their return on equity profile and the management commentary about the way they approached growing business / investing in technology, branches etc. back at the time.
The periods (90s / 2000s) are not comparable with current times but the thought process about funding growth is quite instructive. Back then too they had access to capital from international investors and many did invest in the bank. Its a good dive into history of what banking looked like during its formative years for anyone interested.
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