IDFC F4Q11: A Miss Driven By Non-Interest Income :: Morgan Stanley

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IDFC
F4Q11: A Miss Driven By
Non-Interest Income
IDFC reported a PAT of Rs2.9 bn (-11% QoQ / +26%
YoY) – below our expectations of Rs3.5 bn. The miss
was driven by lower non-interest income, higher
provisions and weaker than expected NII growth. EPS
was down 8% QoQ and flat YoY (given equity issuance).
Key highlights from the results:
a)  Volume growth: Infra loan growth was robust at
7% QoQ / 50% YoY vs. 2% QoQ / 51% YoY in the
previous quarter.
b)  Margins were stable sequentially, driving good
NII growth: Margins on infrastructure loans (on our
computations) were stable sequentially (down 72
bps YoY). Adjusted NII on infra loans grew by 8%
QoQ and was up 27% YoY.  

c)  Non-interest income (ex-cap gains and adjusted
for the reclassification related to subsidiaries) was
down 21% QoQ and 26% YoY. Infra fees were
lower sequentially at Rs270 mn vs. Rs520 mn in
previous quarter. Management fees in asset
management were down 21% YoY (-2% QoQ) while
carry income was Rs240 mn (vs. Rs720 in F4Q10).
Investment banking / brokerage business revenues
were down 25% YoY. Capital gains were stable at
Rs290 mn.
d)  Cost:income (adjusted) was flat QoQ at 24.5%.
Operating expenses were flat QoQ and down 30%
YoY (expenses in the same quarter last year were
elevated because of back-ended bonus provisions
were made in that quarter).
e)  Provisions were higher – at Rs0.9 bn vs. Rs0.5 bn
in F3Q11 and Rs 0.7 bn in F4Q11. Part of the
increase was related to provisions on the equity
investment book