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IDFC
Neutral
IDFC.BO, IDFC IN
4Q11: Fee income continues to disappoint
• 4Q miss on low fee income: IDFC reported 4Q11 net profit of Rs2.86bn
up 25% y/y but ~15% lower than our estimate. Strong loan growth and
treasury income aided NII (+50% y/y) but fee income continued to
disappoint with ~30% y/y contraction.
• Loan growth strong, marginal improvement vs. 3Q11 on sanctions:
Loan growth at 7% q/q improved vs. 2% q/q growth in 3Q11. Sanctions
also improved relative to a very weak 3Q11 but show clear signs of
deceleration relative to 1H11. Overall loan growth has been very strong
at ~50% y/y growth but we expect growth to moderate in the near term
given high rates. We believe this could impact profit growth as loan
growth was the primary profit driver in FY11 with fee income
continuing to disappoint.
• NII helped by treasury gains: NII was higher than expectations mainly
due to some treasury gains booked and stronger-than-expected loan
growth. Margin contraction of ~15bps q/q was in line with expectations.
With low incremental spreads and higher leverage, we expect margins to
moderate from current levels.
• Fee income drags overall profitability: Fee income continued to
disappoint with ~30% y/y contraction. Low flow business income and
loan–related fees led to disappointment. Fee income growth has been a
continuous drag on overall profit growth and with lower loan growth
expected, loan–related fee income could also come under pressure.
• Maintain Neutral: Valuations at 1.7x FY12E book (13.3x FY12E EPS)
is undemanding but we see risks to profit growth with moderation in loan
growth and margins in the near term. Also, we see medium-term risks to
asset quality from large power exposure given fuel shortage and low
merchant rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDFC
Neutral
IDFC.BO, IDFC IN
4Q11: Fee income continues to disappoint
• 4Q miss on low fee income: IDFC reported 4Q11 net profit of Rs2.86bn
up 25% y/y but ~15% lower than our estimate. Strong loan growth and
treasury income aided NII (+50% y/y) but fee income continued to
disappoint with ~30% y/y contraction.
• Loan growth strong, marginal improvement vs. 3Q11 on sanctions:
Loan growth at 7% q/q improved vs. 2% q/q growth in 3Q11. Sanctions
also improved relative to a very weak 3Q11 but show clear signs of
deceleration relative to 1H11. Overall loan growth has been very strong
at ~50% y/y growth but we expect growth to moderate in the near term
given high rates. We believe this could impact profit growth as loan
growth was the primary profit driver in FY11 with fee income
continuing to disappoint.
• NII helped by treasury gains: NII was higher than expectations mainly
due to some treasury gains booked and stronger-than-expected loan
growth. Margin contraction of ~15bps q/q was in line with expectations.
With low incremental spreads and higher leverage, we expect margins to
moderate from current levels.
• Fee income drags overall profitability: Fee income continued to
disappoint with ~30% y/y contraction. Low flow business income and
loan–related fees led to disappointment. Fee income growth has been a
continuous drag on overall profit growth and with lower loan growth
expected, loan–related fee income could also come under pressure.
• Maintain Neutral: Valuations at 1.7x FY12E book (13.3x FY12E EPS)
is undemanding but we see risks to profit growth with moderation in loan
growth and margins in the near term. Also, we see medium-term risks to
asset quality from large power exposure given fuel shortage and low
merchant rates.
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