IDFC First Bank Limited

Stock Opportunities
1932

OLA Electric has created some good buzz in the e-mobility market. No wonder the first lot was sold out within minutes of launch!

Now they have announced the Payment plan via EMIs. Good to see IDFC First in the list of banks!

Disc: Invested & biased

5 Likes
1933
6 Likes
1935
1 Like
1936

Linking my post from the IDFC forum here, what happens to the bank if an NBFC like Bajaj Holdings or Piramal buys out IDFC ? Will there be any impact on the bank?

1 Like
1938

Just a matter of sometime before they all become eligible as per this; RBI should be coming out with its new ownership guidelines soon. Even the Internal Advisory Group of the RBI reccomended allowing corporate ownership of banks.

1 Like
1941

After todayā€™s series of Telecom reforms and four years moratorium on AGR dues , I hope the Vodafone NPA discussion will rest for a while.
VV sir many times mentioned in the interviews that government will not let the VI to die and he is right. As an investor it is a huge relief for me because VI npa discussion wasted lot of real estate on this valuable forum.

9 Likes
1942

Are you speculating or is there data that vodafone be able to make the payment to idfc first in feb-march 2022?

1 Like
1943

The point is that with the decision, VI may find it easier to find a strategic investor - if that happens, VI can very well tide over the crisis.

1944

Agm happened yesterday.

My key takeaways:

  1. Theyā€™ve done 6000cr of new corporate lending post merger. Only 10cr is overdue.
  2. Pre pandemic 98.8% collections, post pandemic in August 99.5%.
  3. 1% cashback on debit card spends, no conditions.
  4. Credit card reward points can be spent on anything. Have experienced this personally & they are far ahead of competition here. Hdfc bank still requires me to spend it on airlines or hotels. My reward points just expire due to pandemic. In idfc first credit card on literally any online transaction I can chose to pay with reward points.
  5. They have talked about wealth management biz for first time. Kedar sir had talked about this earlier. Will be interesting to do some scuttlebutt here & track this closely.
  6. They are planning to consciously slow down deposit growth since they donā€™t have the need for the sort of 40-60% Cagr growth we saw in last 2 years.

On the VI issue, agr+spectrum dues were >60k cr out of 180kcr debt which vi. So the fact that they only need to pay it 4 years later can provide some relief although I have not done any calculation here. Government has also said that debt can be converted to equity 4 years later if needed. Going forward agr will only be calculated on telecom revenue not all revenue. The probability of VI going under has gone down drastically in my understanding.

Vi currently pays 24000cr for its agr + spectrum dues which it wonā€™t need to do for next 4 years.
Good resource:

Disc: invested, biased.

5 Likes
1945

Some interesting observations from the AGM

  1. Utilised our CASA mop-up to pay the legacy borrowings (CPs, wholesale loans, etc.)
  2. Launched a program - 1% cashback on debit card spends - no minimum limit
  3. Moderating deposit growth in the medium term since theyā€™re comfortable with the current deposit pool for the next 6 to 12 month.
  4. 120 corporate loans since merger totalling to 7600 crs. Out of this only 1 account worth 10cr is overdue. (indicates the lending process and quality of wholesale book)
  5. Example of customer approach :: Digital process for morotorium.
  6. Credit cards: Reward points can be spent on anything - no restrictions - no limit (alright, iā€™m switching to IDFC FB CC)
  7. Asset quality targets - 2% GNPA, 1% NPA and 2% provisions on funded assets
  8. Collection efficiency in August 2021 > 99.5% (exceeds pre covid levels)
5 Likes
1946

Just one point Sahil.

The gross debt due to AGR dues is INR 50k cr. Due to revision of the AGR definition and exclusion of non-telco revenues, the gross debt itself will come down.

Secondly, the gross debt for spectrum + AGR is 150k cr. Morotorium on it means that VI has to service gross debt of only 25k cr (approx.). Cash EBITDA in Q1 for VI was 1300 crs. Annualised - this is 5k cr or 20% of the gross debt. I am sure the actual interest rates would be much much lower.

I do feel that this should help VI in its fund raising plans.

1947

Here irony is Vodafone UK and AB group donā€™t want to put any money in business and they want other investors to get in ā€¦

Vodafone is loosing itā€™s customers and bidding for 5G spectrum will b tough for themā€¦ Pressure of Debt is huge

IDFC Bank has more than 2.9% of itā€™s loan book on VI around 15% they marked as outstanding debtā€¦

Merger with IDFC Ltd and VI issue plus covid stress are putting pressure on stock and it will continue till everything gets cleared ā€¦

Now itā€™s upto individual to decide during such bull run to block there capital and take opportunity cost or consider it bargain buy ā€¦

5 Likes
1948

Exclusion of non-telco revenues is prospective; it will not impact existing liabilities.

1949

This is an incorrect figure all websites and news agencies are taking. Itā€™s near 2%. The 0.9% is bank guarantees which are not shown for any other bank.

The loan book exposure will be over by March 2022. To IDFC first bank shareholders, it does not matter what happens to VI as long as it lives for next 1 year or so. As long as that happens, vi will pay back the exposure & the dealing will be over.

Has no impact on bank

Is behind the bank unless there are lockdowns due to wave 3. Check the agm summary & collections and check bounce rate.

Heard same narrative at 25 rupees price around march-april-may 2020. Both company & stock has done remarkably since then. Market is smart it discounts the future. Wonā€™t wait for squeeky clean book before rerating. Look at where the puck is moving. Not where it is.

Would not be surprised if company gets rerated to 2x valuations in next 2 years along with 30-40% AUM growth.

14 Likes
1951

Attended the AGM yesterday. Coincidiently and fortunately the Vodafone stress is also behind us(which also gives the bank a buffer of Rs 450 crs already provisioned for VI to be reversed). Overall the AGM was very good and the future commentary looks promising. A few pointers given in the Q&A in the AGM:

  1. The bank doesnā€™t require a high inflow of CASA. From now onwards you may see flattish to slightly upwards growth in customer deposits. Donā€™t be perplexed by it since it will now be the bankā€™s strategy. FD rates have been further reduced by 75bps effective 15th Septemberā€™ 21. VV was very confident that if the bank needs CASA it can easily raise it at an appropriate time.

  2. CASA growth could be in the range of 3000-3500 crs per quarter.

  3. VV sounded confident on loan growth and hence we can assume a number higher than 25% there.

  4. One point which disappointed me slightly was that he guided for a C/I of 80% for FY22 which seems very high to me. I was expecting C/I in the range of 73-75% for FY22.

2 Likes
1952

Thanks for the summary Sahil but the point on Wealth Mgmt businesess is incorrect as it has been discussed in the latest AR. Their AUM is up 2x to Rs 3,100cr (see below)-

image

2 Likes
1953

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Reached 25 from 45/- in jan 2020 ā€¦ Nothing extraordinary most stocks reached its Highā€¦

Iā€™m hearing this narrative , ever since vaidhyanathan took over in 2018 ā€¦
Iā€™m not denying re-rating but possible once everything gets cleared and settled.

Recent Results: Asset quality of the bank has deteriorated both sequentially and YoY, indicating the stress due to covid. Gross NPAs rose to 4.61 per cent, up 46 basis points (bps) sequentially and 262 bps on a YoY basis. Net NPAs rose to 46 bps sequentially to 2.32 per cent.

I prefer to go by numbers , rather than commentaryā€¦
Most Financial institution is under stress, and IDFC is no exception

9 Likes
1954

Furthermore, the bank has an added pressure of poor operating leverage, caused by increased number of branches, which will only get solved with time. If everything goes right.

Then again once things clear up, if they clear up, price will be 2x. I guess, I will be fine taking a larger exposure once the NPA story is under check. I can leave other issues to be resolved with time. But, NPAs have got to stop.

4 Likes
1956

This may reduce non-funded exposure of IDFC First Bank to Vodafoneā€¦
.

6 Likes
1957

Will idfcfirst get itā€™s dues?
If so, then this is the second big good news that has come by. First, Vodafone relief and now DHFL.

All in all, I feel even Mumbai Toll isnā€™t an NPA, payment got delayed due to reduced vehicle movement due to Covid. This is temporary. The bank just might end up benefiting by getting late fees etc.

(While we are at it, I am in disbelief that Reliance Capital wonā€™t make the payment. It might happen sometime in the future.)

In short, the following bad news will most likely flip in q2 earningsā€¦

Vodafone
DHFL
Mumbai Toll