Retail profit has dropped 18% QoQ.
506cr vs 595cr
Treasury profit has increased and hence the results look good on face of it. Lets hear the earnings call.
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Its 816 Cr on consolidated level
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In Q4-FY23, the Bank had trading gains of Rs. 216 crore and the Bank utilized Rs. 79 crore to increase the provision coverage ratio. Adjusting for these one time items, the net profit of the Bank would have been Rs. 701 crore for Q4-FY23. The Core ROE on this basis would have been 12.3%
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Hi Everyone,
I listened to the Q4 FY23 concall. Great performance and quite optimistic commentary indeed. But I was disappointed a bit at not being able to find a few pertinent questions and management view on those:
- The profit from retail segment has dropped Q-on-Q (595 Cr previous quarter vs 506 Cr in current quarter). This is a concern considering this is a retail focused bank.
- No further news about reverse merger with IDFC !?
- Does the bank need to dilute equity further for next leg of growth? At a relatively higher equity base of 6618 Cr, is it not already unlucrative from EPS standpoint?
- Whatās the bankās strategy for opening branches? Does it still need to go aggressive? While there are a number of levers to reduce cost to income ratio, wouldnāt adding more branches nullify those, at least near term? And which geographies is the bank trying to penetrate with new branches?
Kindly share your views and insights on these questions.
Disclosure: Invested
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hi,
let me share my views on points you have highlighted.
- Retail Profitability is function of retail asset profitability and retail liability profitability. The more branches they opens the less profitable will be retail side of business as liabilities business would be a drag. This quarter they opened 103 branches so i guess it is a bit subdued and also some extra provisioning not sure from where that was subtracted but there could be some from retail side too.
- Merger ball is in IDFC LTD court as they will be initiator and IDFC First bank has already said they will coordinate. Merger question is more relevant for IDFC LTD Concall, but yes there were no question as more the IDFC First bank does good the better bargaining power will IDFC First bank have with IDFC Ltd for better valuation and/or less dilution.
- The bank will always need capital as their Loan growth is 25%+ and ROEs are like 12.5%. They are trying to get capital through Debt securities like Tier 2 bonds. Also i think its Market cap and not number of shares that is important for valuation. This quarter too, profits grew 33% but EPS grew 25% so there is a affect. But it would not generate the EPS it is generating, if no new capital was raised. The important point is at what price it is raising the funds. Higher the price of shares the lesser dilution will happen. During covid19 the funds were raised at say 23 rupees and just a few months back funds were raised at 58 odd rupees. Raising funds at more than book value is actually a better thing for existing investors.
- I feel banks branch strategy is very dynamic. If they need to grow aggressively they will open more branches and if they want to concentrate on the profitability they will reduce branch expansion. This quarter they were to get huge capital from IDFC Ltd, they opened 100+ branch. Geographically i think they are concentrating branches in most deposit heavy zones like western belt.
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- Thanks Nishit, very well explained. Do we have any estimate for the per-branch cost? That could give us the adjusted retail profitability if we normalize the branch opening to say 30 or 40.
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There is no sure way of calculating per branch cost as the data is not available, but as per back end calculations the operating expense this quarter is around 3400 crores, divide it by number of branches (809) it comes to around 1.4 crores per month. Assuming 40%-50% as branch cost out of total cost, we can assume per branch cost to be around 56 lakh to 70 lakh per month which includes all the salary costs and branch operating costs.
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Thank you Deepak ji. I agree on point 1. This bank generally provides a lot of data. The contribution to PCR from different segments is also an interesting data they could provide perhaps.
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Thank you Nishit. Lot of information packed and insightful inputs.
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Asset Quality āDeterioratesā according to CNBCā¦ They once reported that Warren buffet is investing in Kotak Mahindra Bank
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CEO said they are expecting to breakeven in credit card by 2024-25. Do we know how much was the loss in FY23 due to CC?
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Idfc first has more than 1.2 crore users of fast tag, if they are charging 15 Rs per quarter that means 18 crore Rs of additional profit each quarter.
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Investor presentation
https://www.bseindia.com/xml-data/corpfiling/AttachHis/129d4101-0c09-40e7-a01a-3b345dd0b9c2.pdf
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Just a small correction, banks work on ROA and ROE follows up. So key parameters to track in a bank can be
- ROA
- NIM %
- Price/Book
- Secured Vs Unsecured Book
- Managementās Risk Appetite
- Mgmt Walking the Talk
- Credit Cycle Phase
Latest guidance : They will be retiring the legacy bonds of 9ish % with cheaper loans at 6-7% which will add another 2% interest quantum to the book. To happen in upcoming FY.
As per my experience this is the time to stay on toes and I feel the credit cycle is great for another year but fine for FY25 which is eventually my selling year. Just thinking like a PE fund.
Once you are done with all these, have the courage followed by patience to hold a good chunk.
Disc : 10% allocation to stock.
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Recently noticed that IDFC Banking App is allowing users to scan and pay directly from IDFC credit card. I just noticed this last week while trying to make a UPI payment at a grocery shop. Looks like we may not have to carry the plastic credit card to shops going forward.
AJ
Disclosure: Remain invested.
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This is true for only UPI linked RuPay credit cards
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Not exactly related, but we can use Gpay to pay via any credit card. The other party has to be merchant, not individual. I use SBI, HDFC and Citibank CC for this.
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The stock has been experiencing positive momentum following a series of favorable developments and an overall bullish sentiment in the banking sector.
IDFC First Bank has witnessed a significant rise in its share price, reaching a 52-week high. The surge is attributed to several factors, including the bankās improved financial performance, successful fundraising efforts, and positive market sentiment toward the banking industry.
The bank has been focusing on strengthening its balance sheet, improving asset quality, and enhancing profitability. These efforts have been well-received by investors and have contributed to the positive momentum in the stock price.
Furthermore, IDFC First Bank has successfully raised capital through various means, including qualified institutional placements (QIPs) and private placements. These fundraising activities have not only boosted the bankās capital adequacy but have also instilled confidence in investors, leading to increased demand for its shares. The overall positive sentiment in the banking sector, driven by the recovery in the economy and favorable policy measures, has also played a role in the surge of IDFC First Bankās shares.
As a result of these factors, IDFC First Bankās shares are on track to hit the ā¹100 mark, indicating a positive market sentiment and investor confidence in the bankās future performance.
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Rating upgrade.
Comes right in the middle of a rally.
9472aec8-9283-4e45-ad95-a333302119ff.pdf (991.4 KB)
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