Good part of the result is improving CASA, NIM, increasing Retail loan book, stable NPA, prudent risk management.
Bad part:- continuous provisions(not in management’s hand as dhfl, vodafone, sical logistic and bad economy came out of blue) , decreasing book value and CRAR.
Expecting them to soon launch credit card business in this quarter
Have to look at MSMe, as MSME cmay turn bad if economy doesnt turn around soon
Invested may add more in near future
Somehow I get the feel that Vaidyanathan hasn’t been proactive enough to address the toxicity of the corporate book he was handed over by Dr Lal. Quarter after quarter same story about hundreds of crores being written off …and he smartly deflects all questions around this bad book to the rosier stuff around NIM expansion Retail growth and CASA … all good … but as a whole it’s leaving a frustrating experience as the bank realistically is quite a few quarters aways from being in the black. And of course with the bloated equity …there has to be some serious questions around his Halo…
in a recent post @basumallick had asked few wonderful questions and I think investors should atleast ponder over those … who told becoming the next HDFC bank was easy ?
Vodafone idea is to remain big overhang and it can push bank many years behind if defaults so there is high chance of derating
Balance sheet is becoming like growth without cash flow
From investor presentation:
Reducing InfrastructureBook. Infrastructure book decreased to Rs. 15, 016 crores (reduced by Rs. 7,695 crore in 12 months since merger)
Reducing Wholesale loan book: W/S loan book decreased to Rs. 42,951 crore (reduced by Rs. 13,858 crore in 12 months since merger)
Going by this burndown rate it will take 2-3 years for infra+wholesale exposure to come down to 30% of overall liabilities.
On Provisions:
Bank recognized an legacy exposure of Rs. 3,244 crores (Rs. 2000 crore funded, Rs. 1,244 crores as Spectrum Guarantee) to a large telecom account as stressed and took provisions of Rs. 1,622 crores. Also provided Rs. 110 crores to one legacy Thermal Power account.
Page 33 : List of Stressed account balances - 3487 for which provision of 1773 is done.
My interpretation => Overall infra + wholesale (15016+42951=57967) under watchlist is 3487 which is 6%.
I feel provision of 51% is too low, it could to rise it to 100% in next few quarters / years.
Also there is no reason why additional accounts (from 57976 book ) cannot come unders watchlist
Looks like bottomless pit for now.It would have been better for V.V. to continue CF or approach for banking licence directly instead of merger route.
Good part is there are disclosing stress book in presentation so one can take / do not take calculated risk.
Views invited.
Discl: Invested
DHFL, Reliance Capital these emerged as bad assets only after VV took charge
Corporate Tax Deferred assets - VV doesn’t have any control
Telecom exposure - we know how many companies in Telecom sector have gone bust and the recent AGR ruling for which too VV doesn’t have any control
Bank & Management has been forthcoming, when in doubt they are disclosing. The narrative cannot just change over today’s result.
Nothing against your views. They have wholesale loan book of only 57000 crore and all cant go bad. By that logic people should not invest in ICICI bank, Axis,SBI,HDFC , they all have huge exposures on wholesale lending. And the vice versa is also not true that retail is some kind of Raam Baad in financial sector. it can also go bad. Prudent risk management is the key here.
Though the result have disappointed everyone due to high hopes , they are on their guidance that they shared a year ago. These things are part of financial companies. Only laggard I feel in the Bank is its high equity and available free float in the market that is dragging the price. It would be very difficult in long run , until some DII and FII enter the stock for a very long term perspective
My concern with the results was not Vodafone or infra. The only surprise there was 3244 cr number. everyone was thinking 2k.
To me the real disappointment was 600 cr provision outside of the write offs. It that likely to continue and is that the normal number to consider.
i think we will see meaningful profits only 2 years out.
Despite the disappointment, I think they are on right track.Given the capital buffers they have, it is the right strategy to take upfront provisions. Once profits start, these will not be there as overhang.
Does any one know if provisions taken for one account can be used to cover other npa’s. Does RBI audit cover that. Just curious why provisioning is required for vodafone.
I think Vodafone was bit over done. However it’s good that they did it. What worries me is the infrastructure book. Still lot of uncertainty there. I feel lot of people like me jumped the boat way too early here. VV wants to show all -ve first which is very good. But stock price might keep going down.
What do you actually mean by bloated equity? I’ve been following this thread and all I see is failed promises from VV time after time. I think he shouldn’t promise anything going forward except on the retail side of the story which I feel is picking up nicely.
Now worst is over for the stock. All required provisioning for the stressed accounts are done. Its making 650+ cr quarterly operating profit, can not ignore this fact.
As mentioned, CAGR ruling, corporate tax adjustment, big corporate legacy group defaulter (dhfl, reliance capital, sical, Vodafone-idea etc) in not in VV hand.
Now seeing everyone is pessimistic for this stock after IDFC Bank announced loss in 6th consecutive quarter. And it’s stock market rule to run stock in this pessimistic scenario. Weak hand will exit and strong hand will make big money in long run.
Every bank has this phase to clean its book to grow. ICICI Bank also done same thing in last 3 year. As far as Infra and corporate book issue, every bank has big corporate book and big account exposure. Not only idfc first has exposure in Vodafone but also big banks like Hdfc, icici, sbi etc all have big exposure but idfc first aggressively took provision and silent this issue in this quarter. Even we are sure Vodafone account may not be npa. Govt can’t take this risk.
It seems idfc first corporate to retail transformation has been going smoothly and can see positive margin impact on operating profit. Now next result may be around 15ht April and market will discount upcoming result in next 2 month.
Idfc first has 1L+ loan book (corporate+retail). It is same since 2 year due to clean up and transformation (corporate to retail) process going on. Soon loan book will also grow and it will grow in retail segment only. It’s matter of time. Bank has no intention to lend in corporate side and will keep same Corporate loan book around 40k.Expecting multi bagger return in this stock in long run.
Disclosure: fully invested. My view may be biased.
I have no doubt in management quality and intent, what I fear is infra + wholesale NPAs are beyond anyones control and prediction (Vodafone). Living with uncetainity has it own merits and demerits. Looking at quarterly results,one should not say worst is over. Last quarter everyone was positive and this quarter things are not looking good. This trend will continue for some time now , till infra books comes down to targeted 30% atleast.
As far as I know, this is for the first time that VV is saying that all large infra exposures (btw their infra book is a subset of the wholesale book) are sufficiently provisioned for. Barring fresh provisioning of 500-600cr every quarter for minor NPAs, things should look better.
No, provisioning is done account wise as per RBI extant guideliness. Though provisioning for standard asset is. 0.25% only. Vaidhyanathan has been taking higher provisions on standard accounts. I believe provisioning may continue for a year… Dont expect big returns from the counter.
Disc invested
Watching the full Hindi interview , Provisions of 500 cr per qtr on retail side alone will make 4% gnpa per year on 50000 cr retail book. This is huge … Why is VV guiding such a high number. When retail gnpa is 2.2% now… I have not even consider infra and wholesale part. Seems like tough road ahead for next 2 years. Repenting that I have jumped tooo early in this counter.
Hi @Koushal.vv, your calculation seems off. Could you please double check?
The retail loan book is already 50,000 cr and growing. 500 cr would be like 1% GNPA not 4%.
Btw the guidance in the CNBC awaaz is for 350cr NPA from retail book.
It’s not 500 cr per quarter … it’s per year
