Double digit ROE by end of FY 2023.
Next target is 16%
Ultimately high teen ROE.
Was just going through the latest SHP and noticed all the large investors who invested during the 2021 QIP no longer show up in the SHP in June 2022 anymore (1%+ holders). Not a great sign if you canât hold onto your institutional investors, and they are willing to exit at a 30-40% loss. This is concerning especially if IDFC First has to go to the market again in the future to raise equity capital.
June 2022
December 2021
2021 QIP
Edit: HDFC Life Insurance showed up till June 2021 but exited shortly thereafter-
well with the reverse merger in place there is no need to raise fund in near term. From charts it looks like it made a bottom at 29. with all banking stocks showing similar charts. So if bank gets rerated by FY24 end they will be able to raise fund. Some times institutions behave like Bhav bhagwan che. They exited many good NBFC (Mas financial services ltd 20% roe nbfc at PB ratio 2 was available at pb ratio of 4 precovid, no significant increase in npa inspite of covid) with great numbers because price was underperforming.
My discussions with mutual fund industry lead me to believe that it might not be right to view mutual funds as best long term investors. They are as impacted by price performance as anyone else is. âfollow the herdâ behaviour is also very common among them. Another point: Mutual funds prefer to hold cos making profits. IDFCF had a huge one-off loss due to wave2 in june-Q (they could not have sold in june-Q coz they didnt know about this 1-off loss). I am not too surprised that many of them decided to sell after the loss.
Another overhang is the idfc-idfc bank arbitrage. For large periods of time, IDFC has presented better value proposition.
it should thus not be too surprising to see mutual fund shareholding of idfc ltd go up last couple of quarters specially.
I think our time is best spent analyzing the credit underwriting quality, liability strengths etc because at end of day fundamentals dictate the price performance (& thus mutual fund ownership). Fundamentals lie at the root node of the causal graph for stock price.
Thanks for the clarity⌠last years two factors were at playâŚ
- Russia, inflation, etc⌠which was common to everybody. which is why all banking stocks have underperformed.
- but specific to this Bank, two additional factors were at play.
a. Vodafone Idea issue dragged for almost all of the year (now sorted, but the damage was done during the year)
b. Announcement of clear intent to merge, which immediately resulted in stock of IDFC shooting up and IDFC bank coming down, as the arbitage reduced.
hopefully with the arbitage reduced there is no more incentive for people to sell the bank and buy limited, but we cant be sure⌠if any experts can comment on this issue, and whether there is any more point buying limited as a proxy to the bank. i dont know, just raising the pont.
the key is whether the banks moves into profits firmly, hope management does not disappoint on this front. too long they have lived on promise of the future, and for some reason, incredibly, everyone believes them.
Was re-reading the Transcript of last concall. VV has stated his pov, somewhat clearly, vehementlyâŚ
Things that are fairly clear:
a. Any doubts regarding double digit RoE have been put to rest. VV said it himself. And his life depends on it.
âwe are for three businesses; the ones that I named earlier; credit card, retail liabilities and legacy liabilities. These three alone if they were to just break even forget being profitable; if they were just breakeven, we will add on a PAT basis, post-tax basis Rs. 500 crores for quarter. You add that Rs. 500 crores to the Rs. 340 crores, that takes us to about Rs. 840 crores. And the annualized Rs. 840 crores into 4 that Rs. 3,400 crores and you
divide Rs. 3400 crores with Rs. 20,000 crores, you know Rs. 21000 crores, you get to see that already touching an ROE of (+15%)â
b. His words "And then (after ROE 15%) you can imagine what a well governed bank with a good ROE growing at 25%, technologically very abled, what we should be valued at.
He touched on âvaluationâ right after he was asked about RM (go figure!)
In that question he said⌠intention to RM is clearly there, no doubts⌠but âThere are so many points to close before you get to that point.â And in the next question, he talked about how high the valuation will reach in the short term.
This makes me think, the bank will wait for peak valuations, before signing up for RM. To me, âso many pointsâ means he wants to bargain, and he will be in a stronger position to bargain after RoE goes double digit: That and that alone is his focus for next 8 quarters.
After this quarter and next quarterâs results, the above laid trajectory will be very clear, and then this stock will be buy at dips. Ready for a long bull run.
However, COVID has taught us that, such calamitous events that can disrupt retail lending will be really bad for this business, will cause sharp swings. Being invested in this bank for the long term, wont be without its set of heartaches.
Promoters / CEOs always suggest that loss making businesses will magically stop making losses in future while profit making business will continue as it. If only businesses were so simple.
Invested : Will hold since banking sector outlook is fair.
Recent history suggests quite the contrary.
I am optimistic, but on high alert for failure in guidance. Instead, VV over delivers sometimes.
*NIM expanded, beyond guidance.
*CASA targets reached much sooner.
*15-20% loan book growth in on point.
*Which makes me think, although he has said 8 quarters will go by till RoE 15% is reached, it might happen much sooner.
Fair call. Do you think this bank will be valued on par with kotak bank?? Because kotak is being run by Uday kotak whom the market believed and he delivered and even idfc first bank is led by VV again a founder run bank like kotak. Can we expect itâs growth on the lines of kotak bank??
I opened an account with the bank and also got a credit card from them. Hereâs my view on their credit card strategy.
They say they design a product which they can sell to their near and dear one. And here they have made a product for which they can sell to their near and dear ones and they didnât forgot to milk money from them.
First of all they say only flat 250 rs cash withdrawal charges and no interest, but they will give you 15000 rs cash withdrawal limit which turns out to be around 20% per annum. The zero interest will entice customers to withdraw cash but they cleverly priced it to make good amount of money for the bank.
And next thing is they say we donât charge 48 percent per annum on your credit card revolving credit. My cibil is 805 and the rate i got is 18%. Like the low cash withdrawal fees it will also entice the customers to use idfc first credit card so that they can revlove it at a lower rate. But the catch here is they offering low rates to high cibil score customers who will pay back promptly anyway. By this they are attracting good payers to use their credit card for all of their purchases and even revolve it if they are short of funds. Bank earns MDR and intrest from the customer for revolving it. If they maintain strict onboarding process then it can make really really good amount of money for the bank while also keeping the most unsecured book very clean.
The management is employing well thought out plans to grow the credit card business. They are not at all being generous to customers but they are creating very good optics.
I believe in the chaps at KMB.
They can pull off 15% growth for another decade.
IDFC First, can fall either way. If they make good on their guidance, it will be positioned somewhere between Bajaj Finance and KMB. Cuz, its retail focused, where margins are high, book is granulized, no DSA (better margins), at the same time cost of capital is only a little higher than KMB.
Bajaj Finance is trading close to 9 PBV and IDFC First is around 1
I think small retail customers have little incentive to stay with the bank now. 4% interest rate now for amount less than 10 lakhs when compared to 7% earlier. How does this serve the purpose of granualized deposits.
Itâs the smart thing to do.
Most saving account deposits are in sub 10L category. So, itâs easy money for the bank; reduced cost of capital, increase NIM.
leading banks give even lower, 3% cuz depositors arenât keeping the money there for the interest.
The banks CASA wonât see attrition at 4%
CASA is usually very sticky. Itâs hard to shift substantial sums for 1/2% delta in interest rates. In past too when IDFC FB reduced rates, the CASA barely moved.
Interest rates in savings account were always calculated on progressive basis. So nothing new, infact the rates have increased, so a SA customer is now slightly better off as compared to few months ago. And compared to other banks like ICICI, HDFC, Axis, SBI, IDFCâs rates are higher. So again, a customer is better off with IDFC First Bank.
There is thing called safety of fund as well ,while idfc does give 1% higher intrest rates but most people including me would park there funds in safer banks like hdfc or axis bank. Not only for safety but better products as well ,you could easily recover that 1 % by better credit cards alone .
From wealth management to credit cards both the banks is miles ahead of idfc,idfc outsources it wealth managment to hdfc or icici as told by my rm.axis netbanking is also better then idfc cant say the same for hdfc but with idfc i have seen the phone banking crashing and i am unable to transfer the funds for some periods of time and this happened multiple times.
The only reason i am using idfc right now is 3 in 1 zerodha account and there no charges on debit card for international transaction and unlimited imps transaction.If i had the money i would park my money in axis or hdfc.
Traders get stuck, informed investors who know what they are doing, who have conviction, who are nimble but also patient, who can afford to stay put for years donât feel like getting stuck. This is not a trade in the general sense, it is an investment, it is an allocation, may be part of core PF.
Not that their thesis will surely work out and they will be rewarded as they expected, but I guess they are willing to take that chance. Some may think they have seen enough and quit, some donât.
There are many such stocks where there is discussion but the price does not move for years, Mayur Uniquoters, CCL, Wonderla, Avanti etc.
VP folk are diverse, VP threads are diverse. Stocks where frauds were called and proved, stocks where there is a consolidation for years, stocks which rose meteorically etc. And then there are members who have evolved to different investors, who changed their styles, who value things differently now compared to their past.
There is a lot to learn here fundamentally, technically and behaviorally.
I see a lot of TA around stocks here but for consumer facing entities like IDFC First Bank, I see very little appreciation for the consumer-centric approach that VV adopts at every step of the consumer journey. Itâs a qualitative factor and perhaps the most important one. Would love to see someone perform an analysis on how consumer-centric the bankâs products and support are. Just to remind this forum, VV âthought of a better bankâ after his outstanding stint at ICICI Bank. Imagine the learnings, if you can. Weâre looking at the WIP of something better than HDFC and ICICI here. There will be hiccups but the overall vision and commitment to the vision cannot be ignored during a fundamental analysis.