Buy IDFC at Rs 166.7 and add on dips to Rs 140 - Rs 147 for Target of Rs 187 in 1 quarter & Rs 222 in 3-4 quarters ::HDFC Sec, report

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

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IDFC - Steady Quarter; The RBI Refrains From Any Special Dispensation ::Edelweiss

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Receding uncertainties IDFC :: HDFC Securities

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Sell/Reduce IDFC between CMP to Rs.160 :: HDFC Securities

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Udaan - Buy IDFC:: Edelweiss

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Edel Lakshya - Buy IDFC :: Edelweiss, PDF link

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BUY IDFC:: Kotak Securities

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Long term play, demerger beneficial to shareholders • IDFC:: ICICI Securities PDF link

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J.P. Morgan - IDFC (IDFC IN)

IDFC (IDFC IN) 4Q14 Conference Call: Key steps before transitioning to a bank		Overweight Price: Rs114.50 28 Apr 2014 Price Target: Rs150.00 PT End Date: 31 Mar 2015

IDFC management highlighted on a conference call today the key steps it would take before transitioning to a bank in the next 18 months. Management reiterated that asset quality is likely to deteriorate further, given the stress in the infra segment. The focus will be to improve the current loan mix and not to expand the balance sheet aggressively to cushion the CRR/SLR hit in the future.

· Key steps before transitioning to a bank. The key steps will be: 1) reduce the foreign holdings to <50 1="" 2="" 3="" 4="" a="" alternative="" amc="" and="" are="" as="" assets="" at="" b="" bank="" be="" before="" bn.this="" case="" compliant="" comprised="" create="" creating="" crr="" crystallized="" current="" date.="" day="" de-merger-="" dilution="" do="" domestic="" done.="" eligible="" entities="" etc.="" few="" for="" from="" guidelines.="" help="" hence="" however="" idf-nbfc="" idf="" idfc="" in="" infra="" investors="" is="" it="" later="" levels="" licenses="" lighten="" list="" listed="" lower="" months.="" new="" next="" nofhc.="" nofhc="" not="" of:="" of="" on="" once="" operations="" options:="" other="" p="" placement="" preferential="" qip="" requirements="" result="" s="" securities.="" separates="" sheet="" structure="" subsidiary="" the="" there="" thus="" to="" transfer="" transferred="" two="" up="" which="" will="" with="" yet.="">

· Asset quality. Management reiterated that asset quality is likely to deteriorate further, given the stress in the infra segment. Gas-based projects are witnessing heightened stress and there is still no clarity on the ultimate resolution. We believe higher loan loss reserve (2.4% of loans) will cushion against negative surprise on asset quality going forward. Restructured assets mainly comprise of energy sector and gas-based projects.

· Higher provisions. The higher provisions were mainly because of: 1) cushion against asset quality stress anticipated in the future. 2) Lower disbursement growth resulted in inadequate provisions in 9M14 vs. anticipated stress in the infra book.3) conservative provisions at 5% on restructured assets vs. regulatory requirement of 2.75% on the back book.

· Loan growth. Loan growth is likely to remain subdued, in line with our expectations, given the weak macro. The focus will be to improve the current loan mix with less emphasis on infra and term lending. PSL assets are likely to be built up in the interim period of 18 months before converting to a bank.

Investment Thesis

We are our OW on the stock, as:

1. We believe IDFC’s higher loan loss reserves will cushion against any stress on asset quality in the near term. This should mitigate much of the P&L damage from NPLs.

2. We believe IDFC’s foray in to banking business will be a significant advantage in the longer term as it strengthens its funding profile and diversifies its loan book.

Valuation

Our Mar-15 PT for IDFC of Rs150 is based on a target multiple of 1.35x Mar-15E book, which is at a discount to ~25% to ICICI bank. Our valuations factor in Cost of Equity at 15.7%, Normalised ROE of 14.6% and terminal growth of 5%.

Risks to Rating and Price Target

1) Asset quality risk for the power portfolio, given fuel shortage and low merchant rates. 2) Growth: Another risk is continued slowdown in loan growth surrounding the progress of infra projects. 3) Markets: The dependence on markets means that any further weakness will lead to risk in fees and investment profits.

J.P. Morgan - IDFC

IDFC (IDFC IN) 4Q14: higher floating provisions; asset quality held up		Overweight Price: Rs114.10 25 Apr 2014 Price Target: Rs150.00 PT End Date: 31 Mar 2015

IDFC reported Rs 2.6bn of PAT for 4Q14, down 51% y/y. The sharp decline in PAT was due to higher floating provisions and provision for restructured loans during the quarter. Although the loan growth remained subdued, asset quality held up despite weak macro. Fee income growth remained strong. Spreads remained stable at 2.3%, despite the high rate environment. We maintain our OW on the stock as we believe the bank license will make a significant difference to its long term ROEs and growth rates. We will come back with more details after the conference call tomorrow regarding IDFC’s plans to convert into a bank. Link to our report- IDFC: Bank license long term positive

Table 1: 4Q14 result table

(Rs m)	4Q 13	3Q 14	4Q 14	YoY	QoQ
NII	6,430	6,640	6,680	4%	1%
Loans	6,030	6,100	6,050	0%	-1%
Treasury	400	540	630	58%	17%
Non-int inc	3,630	1,870	2,850	-21%	52%
Miscellaneous inc	30	10	190	-	-
Op. income	10,090	8,520	9,720	-4%	14%
Opex	1,510	1,290	1,380	-9%	7%
PPOP	8,580	7,230	8,340	-3%	15%
Provisions and losses	1,650	370	4,830	193%	1205%
PBT	6,930	6,860	3,510	-49%	-49%
Tax	1,680	1,860	930	-45%	-50%
PAT	5,250	5,000	2,580	-51%	-48%
Non Interest Income
Principal Investment	1,320	760	580	-56%	-24%
Asset management	870	1,010	1,170	34%	16%
IB & Broking	390	190	370	-5%	95%
Loan related & other fees	480	210	610	27%	190%
Spreads (12 mnt rolling)	2.50	2.30	2.30	-0.20	0.00
Margins	3.9%	4.1%	3.9%	0.0%	-0.1%
Prov/PPOP	19.2%	5.1%	57.9%	38.7%	52.8%
Cost/Income	15.0%	15.1%	14.2%	-0.8%	-0.9%
Tax rate	24.2%	27.1%	26.5%	2.3%	-0.6%
Loans (Rs mn)	557,370	535,650	585,450	5%	9%
Borrowings (Rs mn)	542,270	516,300	565,650	4%	10%
GNPA (%)	0.15%	0.60%	0.60%	0.5%	0.0%
NNPA (%)	0.05%	0.50%	0.40%	0.4%	-0.1%

Source: J.P. Morgan estimates, Company data.

· Provisions. Provisions for loans increased to Rs4.5bn v/s 0.5bn in Q314 mainly because: 1) provisions for restructured loans were ~Rs1.4bn (restructured loans stood at 4.5% of total loans), 2) higher floating provisions. Total loan loss reserves now comprise 2.4% of total loans v/s 2% in the previous quarter. We believe higher loan loss reserve will cushion against negative surprise on asset quality going ahead. Asset quality remained stable with gross NPLs of 0.6%, flat q/q.

· Loan growth. Loan growth remained muted at 5% y/y (down 1% y/y excl short term loans), in line with management’s guidance of lower growth due to weak activity in the infra space. We expect loan growth to remain weak and balance sheet to contract further to cushion the CRR/SLR hit in the future.

· Non interest income. The overall fee income growth was strong at 24% y/y. Asset management income remained robust; the loan related fees were also higher due to a one-off short term loan during the quarter. IB income though down 5% y/y, was strong q/q due to better operating environment. The principal book gains remained muted. Given the stable rates the fixed income book reported gains during the quarter v/s loss in the previous quarter.

Figure 1: Asset quality remained stable sequentially

Source: Company data.

Figure 2: Spreads remained stable, despite high rate environment

Source: Company data.

Figure 3: Adjusted loan growth was down 1% q/q

Source: Company data.

 

Investment Thesis

We are OW on the stock, as:

1. We believe IDFC’s higher loan loss reserves will cushion against any stress on asset quality in the near term. This should mitigate much of the P&L damage from NPLs.

2. We believe IDFC’s foray in to banking business will be a significant advantage in the longer term as it strengthens its funding profile and diversifies its loan book.

Valuation

Our Mar-15 PT for IDFC of Rs150 is based on a target multiple of 1.35x Mar-15E book which is at a discount to ~25% to ICICI bank. Our valuations factor in Cost of Equity at 15.7%, Normalised ROE of 14.6% and terminal growth of 5%.

Risks to Rating and Price Target

1) Asset quality risk for the power portfolio, given fuel shortage and low merchant rates. 2) Growth: Another risk is continued slowdown in loan growth surrounding the progress of infra projects. 3) Markets: The dependence on markets means that any further weakness will lead to risk in fees and investment profits.

Technicals -Rolta, Essar Oil, SRF, Torrent Pharma, NMDC, HIL, IDFC :: Business Line

Technicals: Yes Bank, Hinduja Ventures, Tata Power, Aarti Drugs, SKS, IDFC, :: Business Line

IDFC: Buy :: Business Line

Infrastructure Development Finance (IDFC) ::Prabhudas Lilladher, Banks/Financials conference

􀂄 Growth outlook: Management believes that 15%-20% growth is quite
managebale citing refinancing opportunities still available largely subsituting
mid- sized PSU banks (30%-40% of the growth from re-financing). Risk aversion
of PSU banks, consolidation of financiers and better funding rates are reasons
for IDFCs gain in market share in re-financing. Going ahead, IDFC believes, Roads
could offer some opportunities considering that bids by the developer have
become reasonbale as they face increasing scrutiny from financers.
􀂄 Asset quality: Gas projects remain a concern: IDFC expects to limit GNPA to< 1%
even in these challenging conditions and IDFC already has +1.5% provisioning on
its books. The large concern remains under construction gas based projects (~2-
3%% of the book) wherein there could be some rescheduling, but they do not
expect NPV hits. IDFC’s has already provided Rs0.6bn for their Rs1.4bn Deccan
chronicle exposure and expects to write some more in coming qtrs. There have
been ~4-5 power projects that have either been recognised as NPA or promoters
face CBI charges and IDFC does not have any exposure to these SPVs.
􀂄 Margins to be maintained in spite of high re‐financing share: IDFC has seen
improvement in spreads over last 2-3 qtrs and expects to maintain spreads in
spite of higher share of re-financing business where spreads are ~50-75bps
lower. Softness in wholesale rates and more importantly pricing power is aiding
IDFC’s margins in spite of higher re-financing business.
􀂄 Capital market related businesses: Apart from its core lending business, the
company is focussing on its PE business wherein it plans to double the existing
AUM by adding ~$1.5 billion in the next two years through three new funds.
Prospects of other capital market business continues to remain challenging.

Consider short strangle on IDFC :: Business Line

Technical Query Corner: IDFC, Jyoti Structures, M and M Financial, power grid, Tata Steel, Wockhardt:: Business Line

IDFC Ltd has announced its Q4FY12 along with Annual FY12 result : Team Microsec Research

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IDFC Ltd has announced its Q4FY12 along with Annual FY12 result on 8^th May 2012.

On the quarterly basis, the company’s top line increased by 10.25% QoQ and 31.75% YoY to INR1714.78 crores while, bottom line down by 12.17% QoQ and up by 16.80% YoY to INR334.83 crores. For the whole year of FY12, the company’s top line increased by 28.89% YoY to INR6336.45 crores while, bottom line increased by 21.25% YoY to INR1554.01 crores.

Pressure in bottom line is seen mainly because of high cost of capital. The company has reported a 13.16% QoQ and 45.72% YoY increased in finance costs to INR996.04 crores.

The Board of Directors have recommended a dividend of Rs.2.30 per equity share for the year ended 31^st March, 2012.

						Consolidated
Particulars	Q4FY12	Q3FY12	Q4FY11	QoQ(%)	YoY(%)	FY12	FY11	YoY(%)
Net Sales & other operating income	1714.78	1555.4	1301.58	10.25%	31.75%	6336.45	4915.98	28.89
Operating Profit(Excluding OI)	1490.2	1340.68	1099.91	11.15%	35.48%	5568.72	4189.49	32.92
OPM(%)	86.90%	86.20%	84.51%	70bps	239bps	88%	85%	300bps
PAT	334.83	381.22	286.68	(12.17)%	16.80%	1554.01	1281.66	21.25
PAT(%)	19.53%	24.51%	22.03%	(498)bps	(250)bps	25%	26%	(100)bps
Diluted EPS	2.19	2.5	1.84	(12.40)%	19.02%	10.2	8.71	17.10
All data in Crores , EPS Represents Diluted EPS.

Regards,

Team Microsec Research