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IDFC Ltd
Key highlights of 3QFY11 and what can be expected for the rest of FY11
3QFY11 highlights
IDFC reported loan book growth of 49% y-y and 2% q-q in 3QFY11. This is a slowdown
from 2QFY11 levels, but management reiterated its intention of growing at more than
35% CAGR over the next three years. Net interest income grew 64% y-y and 23% q-q
in 3QFY11, as spreads held up at the 2.4% level. Fee income declined 27% q-q on
relatively lower loan fees, I-banking and asset management fees. Leverage on the
balance sheet was low, at 4.2x, indicating a well capitalised balance sheet, which
should allow IDFC to participate as a lead financier in infrastructure projects. GNPL
grew by a marginal 3% y-y while NNPL declined 14% y-y on higher provisions which
increased on higher loan disbursements as the company follows a provisioning policy
linked to loan disbursements.
The cost-to-income ratio spiked to 25% q-q, from 19% in 2QFY11, on employee bonusrelated
provisions but management guided towards a cost-income ratio of less than
24% for FY11. ROA and ROE were 2.8% and 13.7% respectively for 3QFY11.
FY12 outlook
We are factoring in loan growth of 50% for FY11 and 30% for FY12 and a conservative
net interest spread of 2.3%. We are factoring in a cost-to-income ratio of 23% for FY11
and 24% for FY12. We expect IDFC to increase its balance sheet leverage up to 5.7x
by FY13, from the current 4.2x. We expect ROA to average about 2.5% by FY12. As
leverage increases, we expect ROE to inch up to 14% by FY12 and 16% by FY13. We
retain a BUY on IDFC with a revised TP of INR180 (INR230 previously). Our TP is
based on a three-stage residual income model, which assumes a risk-free rate of 8%,
equity risk premium of 6%, terminal growth rate of 4% and beta of 1.
Valuation
At our TP, IDFC would trade at 2.4x FY12E adjusted BV (net of goodwill and DTA) for
an adjusted ROE of 14%. Key risks to our thesis are execution delays in infrastructure
projects, excessive liquidity crunch and higher-than-expected slippages.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDFC Ltd
Key highlights of 3QFY11 and what can be expected for the rest of FY11
3QFY11 highlights
IDFC reported loan book growth of 49% y-y and 2% q-q in 3QFY11. This is a slowdown
from 2QFY11 levels, but management reiterated its intention of growing at more than
35% CAGR over the next three years. Net interest income grew 64% y-y and 23% q-q
in 3QFY11, as spreads held up at the 2.4% level. Fee income declined 27% q-q on
relatively lower loan fees, I-banking and asset management fees. Leverage on the
balance sheet was low, at 4.2x, indicating a well capitalised balance sheet, which
should allow IDFC to participate as a lead financier in infrastructure projects. GNPL
grew by a marginal 3% y-y while NNPL declined 14% y-y on higher provisions which
increased on higher loan disbursements as the company follows a provisioning policy
linked to loan disbursements.
The cost-to-income ratio spiked to 25% q-q, from 19% in 2QFY11, on employee bonusrelated
provisions but management guided towards a cost-income ratio of less than
24% for FY11. ROA and ROE were 2.8% and 13.7% respectively for 3QFY11.
FY12 outlook
We are factoring in loan growth of 50% for FY11 and 30% for FY12 and a conservative
net interest spread of 2.3%. We are factoring in a cost-to-income ratio of 23% for FY11
and 24% for FY12. We expect IDFC to increase its balance sheet leverage up to 5.7x
by FY13, from the current 4.2x. We expect ROA to average about 2.5% by FY12. As
leverage increases, we expect ROE to inch up to 14% by FY12 and 16% by FY13. We
retain a BUY on IDFC with a revised TP of INR180 (INR230 previously). Our TP is
based on a three-stage residual income model, which assumes a risk-free rate of 8%,
equity risk premium of 6%, terminal growth rate of 4% and beta of 1.
Valuation
At our TP, IDFC would trade at 2.4x FY12E adjusted BV (net of goodwill and DTA) for
an adjusted ROE of 14%. Key risks to our thesis are execution delays in infrastructure
projects, excessive liquidity crunch and higher-than-expected slippages.
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