IDFC First Bank Limited

If and when IDFCFB share price crosses 80, the equation would start changing and the arbitrage available now, will dissipate. It doesn’t look like that VV is in any hurry for the merger. In fact he should delay the issue of Tier 1 capital as much as possible to get a high price for shares to push up the book value as well as minimise the equity dilution. That would be in the long term interest of the bank.

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Too much is speculated about the merger. The take is that the merger is a given as the shares already exist and no dilution will happen. So all this talk of book value, ROE etc. is futile. The only matter of importance is that does he want to raise more equity from the Rs 4000 crore odd cash balance on books of IDFC. VV will be making an honest mistake if he does not… But in any case there is just going to be a slight difference in taxation. From a capital gains in our hand ( on shares received after merger ) or dividend taxation. So rest your horses…It is not a material difference !!

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Has the merger ratio already disclosed?

Can someone please explain the maths behind the merger? of if there is any article / video which can help me understand the financial implication of the merger on the shareholding / share price, kindly share.

If that was decided and disclosed already, there won’t be any discussion on which one to buy - IDFC Ltd or IDFC first bank.

VV is a veteran banker and he knows the situation better. He will do what’s best for the bank. We shouldn’t be speculating and judging his actions. So far he has walked the talk and achieved many things well ahead of his target time.

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“Overall, the total number of credit cards shrunk from 7. 79 crore in August to 7. 77 crore in September. In September, ICICI Bank’s card base shrank by 4. 4%, or nearly 6. 2 lakh cards to 1. 3 crore. This was fol-lowed by Standard Chartered, which dropped a lakh cards (nearly 7. 8%) to 12. 2 lakh cards. HDFC also lost over a lakh cards with its card base now at 1. 6 crore. Kotak Bank, SBM Bank and IDFC First added the most cards. The number of outstanding credit cards has grown by nearly one crore since September 2021 when they stood at 6. 5 crore.” - TOI

Source:

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Most of the closed cards are due to RBI regulation IDFC is not affected as most cards were issued less than a year ago.

The main thing to track is spending market share

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IDFC First to hold a board meeting on 4th November to consider plans to raise capital:

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Could this be linked to the AMC sale proceeds of IDFC bank and IDFC’s query to IDFC bank if they would require the proceeds of the sale.

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Two updates,

VV has been allotted more shares, but he is buying them by pledging his old ones. Can be taken positive as well as negative.
Positive because it means he is confident, already burnt his hands once I think this time he would have been more prudent in making this decision.
Negative because disaster like last time can happen again .

https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/IDFCFIRSTBankLimited_November%2001,%202022_RR_304196.html

Rating update could not have happened at a better time. They want to raise capital, this way we can get better rates for T2 bonds.
Although if anyone can shed some light on as to how much more they can raise via T2 , what is the limit ?

I have one more question as to wealth management business. As we know they already had about 6500cr of business in wealth management and it had grown at the rate of 100% YOY, if it kept increasing at the same or little less pace, wouldn’t these funds be moving from CASA to other Mutual funds and all that. At a time when we are already staring at less growth in deposits, does it bode well ??

If I am completely wrong in that please let me know.

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One thing is for sure … the bank is now delivering one win after the other… you can say its all coming together… some of us (including me) were critisizing when in build up stage, but it now appears that things are coming together… profits, asset quality, now rating outlook upgrade… lets hope for more good news.

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Mr. V Vaidyanathan, Managing Director and CEO, IDFC FIRST Bank On ERupee In Talk With Zee Business - YouTube

IDFC First to raise 4000 crore by issuance of equity shares/Tier 1 capital:

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Issuance of equity will lead to further dilution of value for current share holders. Though, not much information provided in today’s update. Need to wait and watch if that’s the way they go or is it through issuance of bonds.

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Looks like all the cash which IDFC will receive from IDFC AMC sale will be given to the bank for IDFCFB shares. Good for IDFC shareholders. Have to wait for decision of the committe with respect to the price at which they will issue.

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5632411132022395IDFC First Bank Company Update_Signed.pdf (600.0 KB)

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Current ROE of bank is around 10% and loan book is growing at around 25 %. To maintain the capital adequate ratio bank has to raise tier 1 capital at 15 % . If 15 % is raised at 1.5 times premium to book value, dilution of the equity will be 10%. This is obvious requirement. ROE of the bank will be progressively increase over time. In future tier 1 capital raise requirement will be less. This capital will be raised at higher premium and dilution will be less. So severe dilution pain is short term ( 1 to 2 years) phenomenon.
Disclosure: invested and biased.

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V Vaidyanathan, MD & CEO, IDFC FIRST Bank, speaks to CNBC TV18 on 1 year capital planning

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"
There’s quite a bit of optimism about banking in general. What about IDFC First, in terms of profits, bad loans and growth?

Our operating profit in FY22 is up 45% over FY21. In FY23 we have guided for 45-50% growth, which we are on track. We can grow profits by a similar amount in FY24 again because it is all based on core income. We have already reached a 1% return on assets within three and a half years. Our gross non-performing assets are only 2% and net NPA is only 0.7%. Our SMA 1+2 is only 1%. Once the ₹750 crore toll road account is sorted, Net NPA at the overall bank level will come down from 1% to 0.7%."

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I believe they will constantly need capital for growth. Since their RoE is lagging behind its growth it needs to raise. Once double digit ROE sustains, this tradition should stop.

Also I believe this makes a strong statement to the parent that they are not hard pressed for reverse merger.

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