IDFC - Long term play, demerger beneficial to shareholders :: ICICI Securities, report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Long term play, demerger beneficial to shareholders • PAT at | 421 crore came in marginally below our estimate of | 431 crore mainly due to flat NII and higher taxes from treasury gains • Fixed income gains were higher at | 128 crore leading to other income surging 70% YoY to | 317 crore • Gross loan declined 1.4% YoY vs. estimated growth of 1.5% dip to | 54001 crore. NII de-grew 1% YoY continuing the declining trend to | 661 crore with NIM declining 10 bps to 3.7% vs. 3.8% QoQ. The spread also moderated to 2% vs. 2.1% on a 12 month rolling basis. Benefit of | 1000 crore equity raised in Q2FY15 is fading leading to margin contraction on lower growth • Asset quality slipped sequentially with GNPA rising to | 362 crore (at 0.68%) from | 342 crore (at 0.62%) QoQ. Similarly, NNPA surged to 0.47% vs. 0.42%. NPA provision remained high at | 182 crore. The restructured book was stable around 6.1% off loan book. • RBI permitted 30% of eligible loans to be exempt from CRR, SLR, PSL in line with our estimate Aggressive growth not seen ahead, diversification expected in loan book Currently, 85% of its loan book of | 54004 crore is in infrastructure with 41% in energy, 23% in transport and 21% in telecom. The book has grown at 33% CAGR over FY09-12. Post that, the loan book grew 10% average. Over the next 12 months, by when the bank will be launched, IDFC is not expected to grow its balance sheet significantly. We expect loan growth to be flat by FY16E with diversified assets getting in. In FY16, the bank will have been formed for part of the year but we have estimated on the basis of NBFC as no data on transfer amounts known. Treasury book growing fast to | 25462 crore mainly depicts build-up of SLR ratio for the bank with share in B/S rising to 29% vs. 23% QoQ. Announced demerger, IDFC shareholder to receive 1 share in IDFC Bank 1. Board/Sebi/RBI approval received to demerge its financial undertaking into a wholly-owned step-down subsidiary IDFC Bank Ltd. Each shareholder of IDFC Ltd to receive one share of IDFC Bank for each share held in IDFC Ltd and the same to be listed 2. All financially regulated businesses will be owned by NoFHC namely IDFC Financial Holding Company, yet to be formed (AMC, alternatives and securities to be transferred apart from bank) 3. NoFHC will hold 53% of the bank with the balance 47% being held by current IDFC shareholders 4. Infrastructure Development Fund (IDF) to be created and certain portion of infra loans to be transferred post clarification from RBI 5. The bank will be listed on day one of operation – under demerger route. IDFC parent shareholder will receive IDFC Bank shares. Shareholders own NoFHC indirectly via parent IDFC Ltd Return ratios now estimated to be >12%, in first year itself as a bank We believe RoE will stay >12% in initial years and RoA, to continue above 2%, post conversion with lower stress of priority sector on infra loans. RBI notification on exemption to banks from CRR, SLR and PSL on infrastructure loans (funded by long term infra bonds) has come as a boon to IDFC. We remain positive over long term (three to five years) for strong returns based on benefits accruing to IDFC on infrastructure push norms from the RBI. Rolling over to FY17, we revise our SoTP target price to | 198 valuing at 1.3x FY17E ABV and recommend BUY.

LINK
 http://content.icicidirect.com/mailimages/IDirect_IDFC_Q3FY15.pdf