I think Vaidyanation answered the first question he said they got low cost borrowings from NHB at 5.5% so they took it and it shows up as borrowing on the BS so nothing to worry about i guess
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Thanks, I saw that too. Question is whether thereās a change in strategy on liabilities too, given reduction in savings interest rates, etc. Bankās Credit/Deposit ratio continues to be quite high compared to peers. If market borrowings continue, C-D ratio will continue to remain elevated.
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Incidentally sebi has been working on an idea that all the recordings of the calls that companies do one on one with analysts and investment banks also be posted publicly and filed with stock exchanges.
hereās the link:
I donāt know whether this will happen or not as companies will fight this .
But the idea is a good one as it democratized access to information and forward looking guidance.
Why should idfc first have private one on one calls with analysts of its choosing and not publicly.
This is highly unusual for a company that talks of high levels of transparency and accountability.
In fact investors should write to sebi to push to get this implemented asap
I think there are enough well recognised and credible investors in this forum to write collectively to SEBI and make a difference to expedite this new ruling
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A lot of discussion on retailisation of Assets and liabilities has happened on this thread. Doing a back of envelop calculation on numbers.
Bank made a core PPOP of ~2k crores in FY21. Revision in SB interest rate will improve this to say roughly ~2.5k crores. Bank has been guiding for NPA of 2-2.5%. so broadly they will have to provide for around 2k crores every year assuming the book size of 1.2 lac crores. This bring us to PBT of mere 500 crores. How can we justify the current valuation with this PBT? what am I missing here? Since they have already improved retail assets and liabilities and assuming some more growth there what will improve the PBT significantly from here?
Thing which u r missing is that after certain level of scale PPOP will increase like J curveā¦then the real numbers we will be able to seeā¦but that will take some timeā¦we have to wait
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Some of the possibilities for a bank can be appreciated with simple numerical examples.
Assume number of branches = 500
Every branch will have at least 50-60 families that have 2 Cr on an average parked with the bank. For large banks like HDFC Bank, ICICI Bank, Kotak bank one can see some flagship branches that have 1000 customers who fall into the category of affluent/HNI and above. Let us work with conservative numbers here. For a reference ICICI Bank has an MF AUM of ~1,00,000 Cr across privilege banking, wealth management and private banking team at a branch network of ~ 5000+. This is just MF mind you, we arenāt even counting things like Insurance and demat assets yet.
Management decides to focus on fee income through a wealth management vertical which focuses on this customer segment. Investment needed for this is just 1 full time RM in each branch at a fixed salary of 0.15 Cr per year and a product/management team of another 20 employees.
Each such wealth RM in the branch manages to start a relationship with 20 such customers over an 18 month period and manages a wealth book of say 50 Cr. Through a combination of products like Insurance, mutual funds, PMS and other offerings, the RM manages to generate a yield per AUA of around 1%. IIFL Wealth which is a true blue private banking outfit makes 0.7%, hence a mid range wealth management outfit can manage to do 1% through a higher proportion of ULIP and other high margin products.
If one does the math, incremental revenue per branch = 0.5 Cr per annum
Total revenue from the wealth management vertical = 250 Cr at 500 branches
Incremental cost due to this is ~0.20 Cr per branch (accounting for overheads and performance bonus)
Behold! We have PBT of approx 150 Cr generated without incremental risk, incremental cost of capital just by doing cross selling and man management for 18 months. And this is an annuity that grows steadily every year without a cost of capital being attached to it. This is just one of the possibilities for an urban customer centric bank, a Bandhan Bank will have a tough time doing this given the customer base it deals with.
The delta from such operating leverage plays for a financial institution is insanely high. Once you have custody of customerās money, trust and a decent brand name, making incremental money is unbelievably easy. There arenāt too many sectors where one can execute this so easily.
Which is why an institution that offers a cosmo work culture and can scale offerings over a period of time under a management that knows what they are doing can be interesting. See how Axis Bank has scaled up its wealth management vertical within just 5 years of serious focus, you can see a similar trend in a PSU like SBI too. They are barely scratching the surface, they started investing into a competent wealth team in 2013.
Is IDFC Bank such an institution who can execute these cross sell initiatives well enough? Do your own work and research
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Sorry I have been busy with work and personal stuff. Iām mostly satisfied with all moves the bank has taken so far and limited myself to watching how the story unfolds so I donāt have any specific questions. But I do agree they need to do more to address minority shareholder concerns.
I did see multiple comments that were disappointed by the bankās increased focus on low risk prime loans. It is true that this will hurt NIMs but it is great for long term investors. If the bank kept lending more at higher rates, because of the perceived higher risk it may not get rated above 3 or 4 P/B for a long time no matter how well they do it IMO.
Regarding wealth managers or RMs, I had done a basic search on LinkedIn for different banks about 6 months ago. IDFC Firstās head count ratio was more or less the same as other prominent banks. I looked at the ratio of wealth managers/RMs to total employee count (LinkedIn numbers for both numerator and denominator). LinkedIn is no where near accurate but probably good enough to assume the bank is strategically working on this segment (but donāt take my word it).
Disc: largest holding, no transactions in the past 5-6 months
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I have been closely following IDFC First over last year. This forum has been very helpful, thanks every one.
On the recent quarter results and the apprehension few investors have about focus on housing finance business - Isnāt it the same process they followed for Capital First, where Initial years (2011-2014) used to clean up liability side. Move on to more stable liquidity/liability structure and then progress on towards safer and predictable sources of income.
I was trying to look at Annual reports over last few years. I observe, Capital First ventured in affordable housing in 2013-14 and scaled it up as quickly.
( 2013-14 The Company further raised Rs. 1.78 bn as fresh equity at Rs. 153/ share. It acquired HFC license from NHB and launched housing finance business under its wholly owned subsidiary. The Company closed down Wealth Management and broking businesses.)
- From Annual Report - 2017-18*
āAdditionally, Capital First also provides affordable housing finance to various categories of customers, largely self-employed, through its wholly-owned subsidiary Capital First Home Finance Limited (CFHFL). CFHFL has obtained a Housing Finance Company license from National Housing Bank and operates on a pan-India basis. The subsidiary has displayed strong performance and its assets under management has surged to ` 2,078 Crore (US$ 320 million) as on March 31, 2018ā
This is my opinion, happy to look at counter views/analysis.
Disclaimer: Invested
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Brilliant gesture by VV. Proud to be a shareholder
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@sahil_vi Any luck with the questions?
One other question I would like to add would be to ask about the rejection ratio for loan applications. They used to have 40% loan approval ratio during capital first days I think. Would like to know as it can be used as a proxy for credit quality(maybe ?)
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Exited my holdings in IDFC First. VV has chosen the right path in opting to concentrate on secured housing loans to premium clients to navigate these uncertain times, however given that the management has decided to alter its business strategy compared to what it was when I invested coupled with lack of upside potential, I decided to use the option to exit and will most likely reenter again when the bank decides to focus on their strengths of banking the underbankedā¦
Discl: Still have exposure through its parent IDFC Limited
Best,
Gaurav.
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Thank for the initiative, i agree with you they need lot of follow ups & reminders to get the reply. Few ideas:
1. Whatās there plan on deployment of AI ?
VV had been sharing this for some time. What are specifics e.g. how much money they have earmarked for AI ?
2. Whatās the revised target of number of Branches by end of 2021 ?
With short term slow down eminent due to Covid 2.0, aggressive opening of branches can be counter productive.
3. Why no significant effort of promoting 3 in 1 account with Zerodha ?
This could have been a great source of revenue during last one year when new accounts were opening like a Tsunami, but we didnāt saw conscious effort from bank
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IDFC First Bank got featured in the āavoidā list of Financial Stocks to avoid in recent time.
Link (ET prime membership is required to read the full article): https://economictimes.indiatimes.com/markets/stocks/news/stay-away-from-financial-stocks-analysts-are-particularly-negative-on-these-3-companies/articleshow/83109134.cms
Here is a small snippet from the article.
Disc: Invested. Top in my PF. In no plan to sell anytime soon!
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This is weird analysis by the analysts.
One must avoid bajaj finance since it can fall 5%. Weird logic to say the least.
Assuming I have a 50% gain on Bajaj Finance holdings- something which a lot of investors might be sitting on then going by their logic you end up paying so much in tax just because the price will fall by 5% next year(btw it can recover later too). So I pay more in taxes to avoid the 5% fall? The logic I have given holds even for idfc first and the -20% fall in price.
Their numbers might be correct but they get their analysis all wrong I feel.
Dis- Invested in IDFC.
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Hey @Rajive
Please do not post any reports which are not public. I believe we had a problem a few months ago and the site was down for quite sometime. Please appreciate the concern.
Copying admins
@basumallick @manish962 @pratyushmittal
Rgds
Deepak
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Agree completely with @deevee. Sharing the overall gist may be acceptable (correct me if I am wrong here), but for sure we must adhere to the access control and avoid sharing the entire document which is not public.
Most of the Analyst reports are already publicly available. One such site is Trendlyne, it provides all the Analyst reports for free, you only need to sign in (which is also free). I am sharing the link to IDFC bank analyst reports page, you should be able to find most of the analyst reports here.
https://trendlyne.com/research-reports/stock/1786/IDFCFIRSTB/idfc-first-bank-ltd/
I hope it helps and I am not breaking any rules. Otherwise, please let me know and I will delete the message.
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Mr. Vaidhyanathanās term is being extended for 3 years from 19 Dec 21, some 6 months before his current term ends. Is this not unusual?
https://www.bseindia.com/xml-data/corpfiling/AttachLive/8c1bedc9-b6b8-4b43-90fd-77f00331d4cc.pdf
Disc: Invested indirectly throā IDFC
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Hi Srinivasa, could you share some more details on why exactly this is unusual or a cause for concern? Mr Vaidyanathan has so far done a good job of steering the bank, by most metrics.
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This is normal practise as RBI will need to give final approval and there needs to be sufficient time in hand for that.
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