BUY IDFC:: Kotak Securities

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IDFC		11-3-2014
Recommendation: BUY ( + )   Target Price: Rs. 172

Q2FY15: Sharp rise in provisions pulled down the earnings

Robust non-interest income on back of strong gains on principal investment,

Investment banking & broking fees and loan related fees aided in strong

operational performance; however, net income (down 13.4% YoY) was

pulled down by sharp rise in provisions (5.6x YoY) as management is

consciously building-up loan loss reserve ratio. Its loan book (Rs.530.4 bn)

has seen YoY decline during previous two quarters, in line with the

management's previous guidance.

Higher risk pertaining to its restructured portfolio (6.1% of advances) has

translated into higher provisioning; however, strong contingency

provisioning (3.6% of loans) provide some comfort. We expect net income

to decline ~20% YoY during FY15 due to higher provisions as well as higher

opex related to building-up new banking franchise while it will grow ~21%

in FY16 with moderate return ratios (RoA: 2.3-2.5%; RoE: 11-12%). We are

recommending BUY on the stock with TP of Rs.172 based on 1.5x FY16E

ABV. As stock trades at reasonable valuation (1.4x FY16E ABV), we believe

this provides good opportunity to enter into the stock.

LINK

http://www.kotaksecurities.com/pdf/pdfs/FUNDIDFC03112014103612.pdf