Have not they sold Reliance Capital and DHFL loans to some ARC…??
The recent quarterly presentation reads
“Our exposure is to Housing Finance Company belonging to this distressed group. Lending banks are running a
process for management change, where a new potential owner has been identified by the CoC. We expect to
get partial recovery which will be PnL accretive to us, as the account is fully provided”
This comment was hinting towards Piramal group as the new management change. And partial amount will be received within a few days.
So it guess ARC had not been involved.
PS: I like one thing about VV, he says it all. Doesn’t hide, good or bad! A little too chatty for a MD CEO, but that’s turning out to be important in this case. Hadn’t it been for the transparency, I’d keep an arm’s distance.
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IDFC’s name is missing from DHFL creditors list sent to NCLT.
list-of-creditors-letter-to-nclt.pdf (400.5 KB)
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So you mean to say that, IDFC has already sold the loan at a haircut? And if yes, then as DHFL has been revived by Piramal and if the payment is made to IDFC then would it be counted as profit in books?
It’s unclear whether Idfcfirst will get some payment from Piramals. Will get more clarity in Q2 earnings commentary.
Nonetheless, I expect PPOP to be around 1200Cr.
Mumbai Toll NPA 850Cr NPA will most likely reverse taking PCR to 67% provisioning.
So even after 200Cr provisioning, PBT should land around 1000Cr, highest ever! For this reason i feel, next Quarter earnings result will be pivotal for its stock price.
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If load got sold and some ARC has bought it with haircut and associated risk. If company gets revived load is repaid payment will go to ARC not IDFC First.
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If Bank guarantees are returned back , wont the non funded exposure of nearly 1200 crores which was owing to these BGs be eliminated thereby reducing the debt to only 2000 crores . Is my understanding correct ? That’s a big positive for IDFCFB
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I think a banker should be able to elaborate the impact of 4 year moratorium on the 1200 crore BG.
Prima facie the risk of DOT encashing BG has got eliminated for next 4 years. However IDFCF will continue to receive BG fee unless the BG is revoked. So it is in the interest of VI and DOT to eliminate this meaningless expense.
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Expected better from The Ken…
No in depth analysis, just the repitition of same old things which everyone tracking IDFC First already know…
Write up is centred around Vodafone Idea exposure, but they don’t know or mentioned about that payment is due in 4th quarter of current financial year and Vi probably just need to survive till then from IDFC First’s perspective…
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Can you please provide for source about where is end date mentioned for VI loans given by IDFC First Bank ?
Every other bank in India big or small is focused on retail lending nowadays. While analysing any stock many people quote Warren buffet’s moat thing. This company has this moat and that company has something other. But I would like to ask the experienced boarders to quote what’s the moat in indian banking industry. I asked few other fellow investors and I received rhe following answers, they are as below
1)Leadership
2)Digital capabilities
3)size of the balance sheet to take risks
Let’s analyse the above moats w.r.t idfc first and other banks in india one by one
- leadership
I don’t know which book it is but Mr. Nassim taleb writes
“We often have the mistaken impression that a strategy is an excellent strategy, or an entrepreneur a person endowed with “vision,” or a trader a talented trader, only to realize that 99.9% of their past performance is attributable to chance, and chance alone. Ask a profitable investor to explain the reasons for his success; he will offer some deep and convincing interpretation of the results. Frequently, these delusions are intentional and deserve to bear the name “charlatanism”
In the same way HDFC bank dominated the Indian banking industry from the past one decade not only because of the leadership of aditya puri. There were number of factors contributed to it. Icici bank bogged down by the infra mess and sbi other psu banks were milked by the corrupt politicians and industrialists, hence the hdfc bank didn’t have any competition and they are what today because of those factors along with the leadership of aditya puri. If circumstances were different then they might still be playing second fiddle to icici bank.(please don’t curse me for saying this).
There are many leaders in the Indian banking industry who had fire in the belly to succeed but only aditya puri did it because he was the right person at the right place.
So as per my opinion the leadership of v vaidyanathan can’t be the only factor for the future success of idfc first bank because there are many leaders at the helm of other private banks who can match the competencies of v vaidyanathan. Every other bank can match idfc first bank in this regard.
LEADERSHIP IS NOT A MOAT
2 ) Digital capabilities
There shouldn’t be much discussion in this aspect as even regional rural banks are opening Digital accounts. All other private banks like icici , rbl have excellent digital lending capabilities
So this is also not a moat
- size of the balance sheet to take risks
Everyone know what’s the risk in banking sector. Many will say Npa of so and so percentage of loan book is risky , but the real risk is locking up of capital in provisions for npa is the biggest risk for any bank because they will miss the opportunities that indian economy will present in its growth story. Icici hdfc or sbi may have 10% of their loan book as npa and can still grow and offer lower interest rates because their provision coverage ratio will be in the 90’s…
Banks like sbi , hdfc, icici will be able to provide for any blackswan event they may face in future and still have sufficient capital for capturing the opportunities. But the same thing can’t be said for smaller private banks because the hdfc or icici didn’t have any competition when they were growing from small to big but idfc ,rbl, etc are having hdfc ,kotak,axis icici breathing down their neck. For example the voda idea saga is the most discussed topic for idfc first thread in last 3 months but it’s not a big issue in other big bank threads even though they have lent voda idea more money than our idfc first bank.
While analysing a company or a sector we often miss the big picture,everyone can see that All the big banks have surpassed their all time high nowadays but not a single small bank is above its march 2020 level. It only means one thing " the big will become bigger" the market is betting on it, who are we to argue against this.
Considering above all things I can only conclude the moat in indian banking industry is only the
SIZE & STRENGTH OF BALANCE SHEET
But sadly our idfc first bank falls behind the big four private banks.
I request members to present evidence backed counter views because it will help me and other people in making changes in our views.
And I also request the borders to not say things like idfc is doing phenomenal things in Digital banking because those things don’t matter in the bigger picture. Idfc or any other banks won’t have any patents on any thing in banking sector. The only thing that matters is the balancesheet.
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Size of the balance sheet is not a moat; there are several banks in India with huge balance sheets but they are not valued highly by market because they don’t generate return on capital. Moat of a lender comes from 1) being able to generate low cost of funds 2) superior underwriting 3) collection capability and to do this consistently year after year. These 3 things allow these lenders to generate mid teens RoE in India, which allow them to raise capital for further growth without diluting their existing shareholders too much. HDFCB and Kotak are valued highly because of that. Kotak BS is only 2x of IDFCB…
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I dont think Banks even need a Moat in India… Opportunity size is so big here…
IDFC First Bank does not need to be a Pidilite or Asian Paints to be a multibagger for investors…it does not need to corner a major share of the pie…
Lets try to predict a very much possible version of the future to explain my point…Total Loan book size of Indian Banks was 110 lakh crores in March,2021 if I am not wrong…
Lets assume it reaches 200 lakh crores in 6-7 years…give a market share of 2.5-3% to IDFC First…
That is a Loan Book size of atleast 5 Lakh crores, now assume a NORMALISED profit on that and give a suitable multiple to get to share price…
.
Loan Book size of Bajaj Finance is not too much ahead of IDFC First Bank…but profitability and market cap is much ahead…anyone investing in IDFC First Bank will make decent returns even if things get normalised…and the story is going in right direction so far…numbers will follow…
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Bajak finance has the distribution network at the every nook and corner of India, almost all urban and semi urban people know bajajfinance. Many semi literate people won’t even say they have purchased the TV on emi , they will simply say I took the TV on bajaj finance. Such is the distribution strength of bjaj finance. Comparing bajfin and idfc first is comparing apples to oranges.
I only ask one thing, why all the big banks and bajaj finance are making all-time highs and small banks and smaller nbfc are below march 2020 lows. Markets are showing the mega trend by these share prices. The mega trend in indian financial sector is “BIG GETTING BIGGER”.
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Size and strength of the balance sheet is a moat because hdfc bank is able to grow its profit 20% only because of its unsecured loan portfolio. They give huge loans on their credit cards like insta loan jumbo loan. And they offer it at above 18% per annum interest rate. The alpha in their profit growth is hugely contributed by this segment only. Without this unsecured credit card loan portfolio hdfc bank wouldn’t be able to deliver on 20% growth. They are able to maintain this huge unsecured loan portfolio because of the strength of their balance sheet. Can idfc or any other small bank will ever be able to get this much bolder in unsecured lending?
And another question is will idfc first be able to match the discounts the big banks provide on flipkart/amazon? Where is idfc first on big billion / great Indian sales? If they don’t provide any discount why would I use their credit card to do my purchases?
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I think it’s very important to not get swayed by NIMs. What matters really is net profit after taking into account cost-to-income and credit costs. Bandhan has 8% NIMs…in Idfcb case, it’s very important we see actual movement down in CI ratio and credit costs over 4-6 quarters before we can be assured of continued profitability.
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Competition in Retail lending is going to intensify. Every one wants a piece of the pie…
Now efficiencies will count.
Cost of funds, CASA %, data analytics, diversification, ticket size, geographies etc.
Have gone through some presentations and ARs… Retail lending is on most minds… Hdfcbank, ICICI, Indus Ind, RBL, Piramals, Axis Bank, SBI cards… To name a few.
The ones that are highly valued, Bajaj finance, will have a tough time sustaining valuation.
#VV at Leaders Of Tomorrow
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Nice speech…
Summary:
*Aam admi wasn’t getting credit earlier. That story is very quickly changing.
*Credit books growth is focusing on retail. Not so much on wholesale credit. His company has grown from 90Cr in 2010 to 120K Cr in 2021.
*Decision making process for giving credit has upgraded from processing bank statements to automation, where data is collated from various sources. GST data helps.
Retail credit is growing at 15/20% whereas corporate credit is stagnant.
*Major shift is happening, from unorganised to organised, to digitization In every sector: kirana, education etc. (We can catch this theme, where we see digitization of businesses being successful)
Our investment themes must have these. Digitization and retail facing businesses.
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