Loans originating for idfc bank are primarily digital as once VV told as branches will get matured more loans will originate from branches so agents commision ie other expenses will get reduced…
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I understand that simply dividing overall numbers by branch count is simplistic, but consider the rapid expansion of branches (~1.5x in last 2 years). I believe new branches are mainly to gather liabilities first, then loans etc. Even when you open an account online, you need a nearby physical presence to service it. If IDFCF was already getting sufficient deposits online through existing branch network, they wouldn’t have opened new branches so rapidly - especially given their already high cost/income.
@Alpha2015 I think purely digital loans are quite a small % (<10%) of overall portfolio. Even if IDFCF has been distributing other loans (Personal, Consumer etc) digitally - they need a nearby collection network at least.
Also, if a high enough share of loans are distributed digitally, shouldn’t the commission payout be lesser? Bank’s relatively higher other expense (commissions + DMA) points to a high share of loans distributed via agents, doesn’t it? Or the higher other expenses is just a function of lower ticket size in majority of its loans - consumer, MFI, personal, 2W etc?
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What will be the long/short term impacts of the merger.
Is it going to go sideways after the merger like HDFC bank? Anyone studied the numbers ?
Will Vaidyanathan’s story be impacted ?
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I don’t believe the reverse merger will have any impact. In case of HDFC-HDFC Bank, HDFC itself had a large standalone housing finance business which had some impact on merged entity.
In case of IDFC, it’s just a holding company with no standalone business of its own. It’s just to simplify to structure akin to Ujjivan and Equitas.
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f7f90415-efc3-486e-9190-0d8839642e56.pdf (229.8 KB)
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I was expecting this mandatory annual equity dilution to happen as late as possible during this F.Y. at a better price than last time…
But looks like fund raise will happen in 2nd quarter itself and it may not happen above 90 rs.
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More equity dilution… not a good sign…
book value will erode further… leaving little room for share price to growth given the current valuation, unless profitability increases considerably which looks uncertain
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The dilution will happen more than the current book value so the total equity will go up, So there won’t be any erosion of Book value it will only increase it
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If I remember correctly, in the past, they would get the board’s approval for equity dilution very much ahead of time. I expect the fundraising to happen towards the end of the FY unless there is an urgent need for capital.
Well, Erosion is in Book value per share. It depends on what Px BV multiple that the Equity is raised. If they are raising at current levels, then it no good.
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the trigger for fund raise will be Tier 1 going below 13%, this has happened every time in the past 4 years.
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Pref issue for 3200 cr at 80.63
I noticed that all the entities to whom the shares will be issued are insurance companies. Out of 6, 4 are life insurance companies. Does this say anything about the long term vision of these companies? Do they believe in the long term story of the bank?
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Banks with a strong growth focus will continue to experience equity dilution at regular intervals. IDFC First is a particularly growth-oriented bank, so we can expect ongoing capital raising efforts.
However, it’s important to note that from a valuation perspective, if equity dilution is conducted above the current book value per share, it is accretive to the book value and helps maintain attractive valuations.
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As per bank’s disclosure submitted to exchanges,
After allotment of preferential shares, the book value per share for the period 31 MAR 2024 will increase from 45.49 to 47.36 . An increase of 4.11%.
Effective price to book at today’s price (76.40 / 47.36) = 1.61
This P/B ratio is looking reasonable , assuming 20% -22 % loan growth for the next 5 years and with superb asset quality.
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It will further increase 5% on merger with idfc
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Growing its book value by equity raise every yr. In spite of high loan growth and low credit cost…
If you double your investment in ~10% ROE business, your earnings double, but it is still not a great investment from the perspective of a shareholder
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Hi Asutosh, on a theoretical basis, i agree with your point. However continuing equity dilution is not value accretive from a shareholder point of view… The bank should create good amount of growth capital from internal accruals, once its Cost to Income ratio improves. The management (basically Vedi) has guided reduced branch openings in future; the existing bouquet of products has seasoned and will become profitable; the deposit collection machine will continue to deliver; the provisioning will stabilise-assuming there is no blunder in the making; 20%~ loan growth will continue. All these will have a positive impact on the numbers and then the stock price
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https://nclt.gov.in/case-details?bench=Y2hlbm5haQ==&filing_no=MzMwNTExODAxOTc0MjAyNA==
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Next date of hearing is 24th of July…so no NCLT approval and no merger until that atleast…
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I have been an investor in IDFC first bank the past 4-5 years and still investing on SIP mode. We still haven’t seen the reflection of the bank’s efficient operations due to elevated costs primarily linked to branch expansion and new product launches. It is unfair to compare a bank which got its license less than a decade ago and started from scratch with a bank which started operations decades back. Like its pointed already, the management guided 5 years back and have delivered on all counts. And i see a similar conservative guidance for the next 5 years which will be easily beaten IMHO. Additionally there are lot of soft factors like customer experience and digital platforms which will play out over the next few years once customers warm up to the bank due to trust factor built with time.
I have never seen any other bank CEO talk fin-tech language anywhere else. And I see this reflecting in the bank’s tech stack and digital customer experience. I would say it is still early days for the bank and it will go through incremental profit metrics as well as valuation re-rating over the next 5 years.
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