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IDFC (IDFC)
Banks/Financial Institutions
Core earnings in line. IDFC reported PAT of Rs3.2 bn, up 19% yoy and 6% below
estimates. IDFC’s NIM moved up smartly even as loan book was stable qoq on a high
base (40% YTD growth). Lower investment banking and lending-related fees and
higher operating expenses tempered earnings; core earnings were up 28% yoy and 2%
ahead of investments. We will revisit our estimates and target price after the conference
call with the management.
Loan growth pauses
IDFC’s loan book was stable qoq. Notably, the company reported 15% qoq and 19% qoq loan
growth in 1QFY11 and 2QFY11; despite stable qoq growth in 3QFY11 loan book is up 49% yoy.
Energy and road transportation sectors remain as the key growth drivers—exposure to telecom
declined by 13% qoq.
Disbursements were up 64% yoy (down 55% qoq); approvals were down 44% yoy. We believe
that infrastructure business tends to be lumpy and hence it would be inaccurate to track the
trends on the qoq basis. Nevertheless, we would track the trend; consistent rise in interest rates
provides risk to growth in the infrastructure sector.
Margins rise qoq
IDFC reported NIM (as per KS estimates) of 4.3% in 3QFY11 versus 3.9% in 2QFY11. In 2QFY11,
NIM had declined by20 bps qoq despite a capital issuance of about Rs35 bn (48% of opening
networth) likely due to large lending towards the end of the quarter. The improvement in 3QFY11
is clearly a positive sign. We will seek more guidance from IDFC’s management on their balance
sheet strategy and medium-term margins.
Muted quarter for non-fund based income
Stable loan book and lower qoq disbursements pulled down IDFC’s loan related fees—Rs520 mn
in 3QFY11 as compared to Rs1.07 bn in 2QFY11. Income form investment bank banking was also
down to Rs80 mn in 3QFY11 from Rs740 mn in 2QFY11.
Income from institutional equities business was almost flat qoq—Rs140 mn in 3QFY11 as
compared to Rs150 mn in 2QFY11 despite 7% qoq rise in cash market volumes.
IDFC Mutual fund’s AUMs were up almost 30% qoq. Aggregate income from asset management
declined to Rs630 mn in 3QFY11 from Rs750 mn in 2QFY11. The company has not booked any
carry income during the quarter
Asset quality performance was stable
IDFC’s NPLs were stable during the quarter—gross NPL ratio was 0.22%. The company
made large provisions of Rs487 mn. Notably, IDFC makes standard asset provisions at 0.7%
of gross disbursements and has a buffer of about Rs6 bn as compared the requirement of
about Rs1.2 bn (the recent RBI notification requires NBFCs to make provision of 0.25% on
standard assets).
Cost to income ratio shoots up
IDFC’s operating expenses increased to Rs2 bn, up 43% yoy. Consequently, cost to income
ratio increased to 31% from 25% reported in 1HFY11. Notably, IDFC’s cost to income ratio
was 19-27% in 9MFY10 but increased to 47% in 4QFY10. In the past, management has
highlighted that expense provisions will be smoothened and not as lumpy as FY2010.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDFC (IDFC)
Banks/Financial Institutions
Core earnings in line. IDFC reported PAT of Rs3.2 bn, up 19% yoy and 6% below
estimates. IDFC’s NIM moved up smartly even as loan book was stable qoq on a high
base (40% YTD growth). Lower investment banking and lending-related fees and
higher operating expenses tempered earnings; core earnings were up 28% yoy and 2%
ahead of investments. We will revisit our estimates and target price after the conference
call with the management.
Loan growth pauses
IDFC’s loan book was stable qoq. Notably, the company reported 15% qoq and 19% qoq loan
growth in 1QFY11 and 2QFY11; despite stable qoq growth in 3QFY11 loan book is up 49% yoy.
Energy and road transportation sectors remain as the key growth drivers—exposure to telecom
declined by 13% qoq.
Disbursements were up 64% yoy (down 55% qoq); approvals were down 44% yoy. We believe
that infrastructure business tends to be lumpy and hence it would be inaccurate to track the
trends on the qoq basis. Nevertheless, we would track the trend; consistent rise in interest rates
provides risk to growth in the infrastructure sector.
Margins rise qoq
IDFC reported NIM (as per KS estimates) of 4.3% in 3QFY11 versus 3.9% in 2QFY11. In 2QFY11,
NIM had declined by20 bps qoq despite a capital issuance of about Rs35 bn (48% of opening
networth) likely due to large lending towards the end of the quarter. The improvement in 3QFY11
is clearly a positive sign. We will seek more guidance from IDFC’s management on their balance
sheet strategy and medium-term margins.
Muted quarter for non-fund based income
Stable loan book and lower qoq disbursements pulled down IDFC’s loan related fees—Rs520 mn
in 3QFY11 as compared to Rs1.07 bn in 2QFY11. Income form investment bank banking was also
down to Rs80 mn in 3QFY11 from Rs740 mn in 2QFY11.
Income from institutional equities business was almost flat qoq—Rs140 mn in 3QFY11 as
compared to Rs150 mn in 2QFY11 despite 7% qoq rise in cash market volumes.
IDFC Mutual fund’s AUMs were up almost 30% qoq. Aggregate income from asset management
declined to Rs630 mn in 3QFY11 from Rs750 mn in 2QFY11. The company has not booked any
carry income during the quarter
Asset quality performance was stable
IDFC’s NPLs were stable during the quarter—gross NPL ratio was 0.22%. The company
made large provisions of Rs487 mn. Notably, IDFC makes standard asset provisions at 0.7%
of gross disbursements and has a buffer of about Rs6 bn as compared the requirement of
about Rs1.2 bn (the recent RBI notification requires NBFCs to make provision of 0.25% on
standard assets).
Cost to income ratio shoots up
IDFC’s operating expenses increased to Rs2 bn, up 43% yoy. Consequently, cost to income
ratio increased to 31% from 25% reported in 1HFY11. Notably, IDFC’s cost to income ratio
was 19-27% in 9MFY10 but increased to 47% in 4QFY10. In the past, management has
highlighted that expense provisions will be smoothened and not as lumpy as FY2010.
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