IDFC First Bank IDFBAN) - ICICI...
Transcript of IDFC First Bank IDFBAN) - ICICI...
ICIC
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Retail E
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August 19, 2019
CMP: | 45 Target: | 54 (20%) Target Period: 12 Months
months
IDFC First Bank ( IDFBAN)
BUY
Retailisation ‘FIRST’ –new mantra at IDFC First Bank
IDFC First Bank has walked a long path of transformation starting from
infrastructure finance NBFC to universal bank. To strengthen retail franchise,
IDFC Bank & Capital First Ltd engaged into a merger to form IDFC First Bank
in December 2018. The merged entity is the eighth largest private bank with
funded asset at ~| 112558 crore (retail: wholesale – 40:60) as of March 2019
and wide customer base of ~70 lakh. It is being headed by V Vaidyanathan,
who has a proven track record at Capital First. IDFC First Bank has a pan
India presence with 279 branches, 199 ATMs, 520 BCs & 102 CFL.
Focus on retail asset & liabilities remains NIM, RoA accretive
IDFC First Bank, in its new avatar, envisages to become a retail centric bank
and shift focus from corporate to granular retail loans, build strong &
sustainable retail liability franchise. Accordingly, a rise in high yield retail
loans, low cost liabilities is seen staying margin accretive with margin
improving from ~3% in FY19 to ~4.5% in FY23E. Gross advances may grow
at ~10% CAGR in FY19-23E to | 162880 crore, with faster retail traction at
27.2% CAGR to | 106850 crore; raising its proportion from 35% in Q3FY19
to 65.6% in FY23E. Such a rise in high yield retail asset is seen improving
yields by ~140 bps to 13.1% in FY23E. On liabilities side, differential rates
on deposits & aggressive customer acquisition would drive robust CASA
growth increasing ~4x in FY19-23E to | 39318 crore, doubling CASA ratio
to ~24.5%. This is seen bringing CoF down ~80 bps in FY19-23E.
Margins to drive RoA; building retail franchise to shore up opex
High yielding retail advances growth, falling CoF is seen driving return ratios
improvement. However, aggressive branch expansion plan (279 currently to
~800-900 in FY23E) would keep CI ratio elevated at ~69% in FY19-21E,
before moderating to ~57% in FY23E. Operating leverage would kick in,
leading to gradual improvement in RoA at ~1%, RoE at ~11% in FY23E.
Building liability franchise; retain focus on retail asset aid valuation
IDFC First Bank, under new leadership, aims to retain its ability to grow retail
asset base at healthy pace with an eye on quality. Building of sustainable
liability franchise would act as catalyst to support valuation. Higher capital
adequacy rules out any near term dilution. Recent recognition of stress
coupled with adequate provisions gives comfort. With anticipated NIM at
4%, we compare IDFC First Bank with banks delivering superior margin
(HDFC, IndusInd & Kotak Bank). IDFC First Bank’s, sustainable RoE being
relatively lower at 10% vs. 16-17% of aforesaid banks, a 50% discount to
their valuation of ~3x P/ABV is justified for IDFC First Bank. Consequently,
we assign a target multiple of ~1.5x on FY21E ABV and arrive at target price
of | 54 per share. We initiate coverage on the stock with BUY rating.
Key Financial Summary
Particulars
Amount
Market Capitalisation | 21210 crore
Networth | 17545 crore
52 week H/L 57/33
Equity capital | 4782 crore
Face value | 10
DII Holding (%) 3.98
FII Holding (%) 13.75
Key Highlights
New journey under strong
leadership and multiple fundamental
levers
Core strength in SME finance to
retain. Benefit of low cost deposit to
support return ratios
Retailisation of advances and
liabilities i.e. CASA to remain margin
accretive
Building retail franchise to result in
higher opex in the initial period
Price movement
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IDFC First Bk (R.H.S) Nifty (L.H.S)
Source: ICICI Direct Research, Company
Research Analyst
Kajal Gandhi
Vishal Narnolia
Harsh Shah
s
Key Financials FY19E FY20E FY21E FY22E FY23E
Net profit (| crore) (1,641) -246.9 711.7 1388.2 2362.1
EPS (|) (3.4) -0.5 1.5 2.9 4.9
P/E (x) NM -85.9 29.8 15.3 9.0
BV (|) 38.1 37.6 38.9 41.5 46.0
P/BV (x) 1.2 1.2 1.1 1.1 1.0
ABV (|) 35.7 34.4 35.8 37.9 41.9
P/ABV (x) 1.2 1.3 1.2 1.2 1.1
RoA (%) (1.1) -0.1 0.4 0.7 1.0
RoE (%) (9.8) -1.4 3.9 7.2 11.3
Source: ICICI Direct Research, Company
ICICI Securities | Retail Research 2
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Company Background
IDFC First Bank has a long record of being in the financial business dating
back to 1997. The venture began as IDFC Ltd, a non-banking financial
company (NBFC) with focus towards financing infrastructure projects in
India. Later, IDFC Ltd received universal banking license in 2015 and started
its journey venturing into non-infrastructure lending as well as providing
retail products on liabilities side – saving and current accounts. Although the
bank focused on growing its non-infra book and retail liability franchise at
faster pace, legacy problem in terms of asset quality and higher opex related
to expansion kept impacting earnings and return ratios. With a strategy to
strengthen retail business, erstwhile IDFC Bank got into a merger with
Capital First Ltd, an NBFC with major proportion of retail advances.
IDFC Ltd started lending operations in 1997 and increased its book size to
~| 53000 crore in FY15. Exposure of the book primarily was to infrastructure
projects in sectors ranging from telecom, roads, power etc. Later, IDFC Ltd
applied for universal license and was granted one in 2015, to set up a
scheduled commercial bank in the private sector. IDFC Ltd transferred its
lending business (including all assets, liabilities, accumulated profits) to
erstwhile IDFC Bank. Thus, inheriting infrastructure lending business from
parent (IDFC Ltd), erstwhile IDFC Bank started its journey as a corporate
lender to become a pan India universal bank.
Erstwhile IDFC Bank, since inception focused on building retail franchise
utilising both aspects of business development – engaging with customers
using digital mode and branch expansion. The bank adopted the strategy of
garnering business from retail & semi urban region by opening up majority
branches in rural areas. However, the bank has to face twin challenges -
building of retail franchise led to higher opex, which kept profitability under
pressure; elevated provision with respect to legacy infra book which led to
higher provisions; especially in H1FY19.
In order to strengthen banking capabilities within retail sector and to operate
as a larger universal bank, IDFC Bank & Capital First Ltd engaged into a
merger to form IDFC First Bank. While the merger was announced on
January 13, 2018, the merged entity came into existence in December 2018,
post receiving of all the approvals. The merged entity is the eighth largest
private bank with funded book of ~ | 112558 crore as on June 30, 2019. As
of June 30, 2019, the bank has a pan India presence with ~279 branches,
199 ATMs, 166 business correspondent & 102 CFL branches. Customer base
seen to increase from currently ~30 lakhs pertaining to erstwhile IDFC Bank
to ~70 lakhs for the merged entity.
The new entity formed by way of merger is to be headed by V Vaidyanathan.
All-round performance with consistency in terms of advances growth (58%
CAGR in FY14-18) as well as asset quality demonstrated in Capital First
induces confidence.
Exhibit 1: IDFC Bank’s performance over the years
H2FY16 FY17 FY18 H1FY19
NII (| crore) 808 2076 1859 912
PAT (| crore) 407 1020 859 -167
Loan Asset (| crore) 53903 70248 73055 75337
AUM growth % 30.3% 4.0% 3.1%
NIMs % 2.0 2.1 1.7 1.9
GNPA % 6.2 3.0 3.3 1.6
RoA % 1.1 1.0 0.7 -0.3
RoE % 6.0 7.2 5.7 -2.2
Source: Company, ICICI Direct Research
Exhibit 2: Capital First performance over the years
FY14 FY15 FY16 FY17 FY18 H1FY19
NII (| crore) 406 637 985 1612 2388 1143
PAT (| crore) 53 114 166 239 327 206
AUM (| crore) 9679 11975 16041 19824 26997 32622
AUM growth % 23.7% 34.0% 23.6% 36.2% 20.8%
NIMs % 5.4 6.6 7.6 9.0 9.6 8.0
GNPA % 0.5 0.7 1.7 1.7 1.6 1.9
RoA % 0.6 1.1 1.3 1.5 1.5 1.6
RoE % 4.9 8.3 10.1 11.9 13.3 14.9
Source: Company, ICICI Direct Research
Erstwhile IDFC Bank advance book as of FY18 was at | 70935 crore. The
bank primarily operated in two segments – infrastructure and corporate,
Shareholding Pattern
Shareholder Holding (%)
Promoter 40.0
Institutional Investor 16.2
Others 43.9
Source: BSE
Top Shareholder
Top Shareholders (%)
IDFC FHCL 40.0
Cloverdell Investment 9.9
President of India 5.5
Government Of Singapore 2.6
Aditya Birla Sun Life 1.8
Caladium Investment 1.4
V Vaidyanathan 1.1
Platinum Int Fund 1.0
Source: Bloomberg
ICICI Securities | Retail Research 3
ICICI Direct Research
Initiating Coverage | IDFC First Bank
contributing ~71% of the book. Capital First, with focus on high yield retail
loans, was engaged in SME, two-wheeler & consumer financing with loan
book at | 26997 crore as of FY18.
Post the merger, the funded book was at | 104660 crore in December 2018
(| 112558 crore as of Q1FY20) with share of retail pegged at ~35% and
wholesale at ~54%. Under the new management, while the merged entity
is to retain its strength in retail lending (proven in erstwhile NBFC), focus will
be on building a retail liability franchise to boost earnings and return ratios
ahead. The management has indicated that, going ahead, the bank focus will
be on retail book majorly on home loans, auto loans (including two-
wheelers) and consumer durable financing. We expect funded book to grow
at CAGR of ~10% to ~ | 161336 crore by FY23E.
Exhibit 3: Transition from NBFC to bank and than merger….
(| Crore) FY17 FY18 Q1FY19 Q2FY19 Q3FY19 FY19
Gross Loan book 66567 70932 75191 75331 104660 110400
Deposit 40208 48198 54057 48356 61915 70479
CASA 2094 5710 6083 6426 6421 9114
PPP 1754 1403 104 19 308 850
Provisions 283 376 23 601 213 1546
PAT 1020 859 192 (370) (1,538) (1,944)
GNPA 1542 1779 1774 895 1671 2136
NNPA 576 891 881 321 796 1107
C-I ratio (%) 42.1 54.1 65.7 96.7 78.8 79.5
PCR (%) 61.0 76.0 77.0 80.0 72.9 55.9
Yield on advances (%) 9.7 8.9 9.1 9.4 11.5 11.7
Avg Cost of funds (%) 8.2 7.6 7.4 7.6 8.0 7.9
NIM (%) 2.1 1.7 1.9 1.9 3.6 3.7
Source: Company, ICICI Direct Research
Exhibit 4: Advances break-up - IDFC Bank (Q2FY19)
11%
37%
34%
10%
8%
Retail Corporate Infrastructure PSL Buyout SR
Source: Company, ICICI Direct Research
Exhibit 5: Advance break-up - Capital First (Q2FY19)
40%
14%
10%
17%
13%
6%
SME/LAP Consumer Two Wheeler
Business Loans Others Wholesale
Source: Company, ICICI Direct Research
Going ahead, the management has penned down a roadmap for the bank
for the next five to six years.
ICICI Securities | Retail Research 4
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Initiating Coverage | IDFC First Bank
Exhibit 6: Strategy for merged entity and our view
Management target Our view
Asset Strategy
To grow total funded asset to ~| 180000 crore Expect gross advances to grow at ~10% CAGR to | 162880 crore
To grow retail asset book to over | 100000 crore
Diversify advance book across sectors with focus on retail and to
take share of retail to ~70% from current proportion of ~35%
Run down infrastructure loans as they matureMerged entity does not envisage funding infrastructure projects. Consequently,
proportion of book is to run down from 19.4% to ~ 2.5% in FY23E
To grow non-infra corporate book to | 50000 crore Proportion of corporate segment to remain broadly similar
Liability Strategy
Set up 600-700 branches in next five years (current branch count
– 206)
Aggressive branch addition to lead to higher CI ratio
To reach CASA ratio of ~30% in five to six years with target of 40-
50% ahead
Differential rates to lead to CASA ratio moving from 10.4% in FY19 to 24.5% in FY23E,
though competition to keep actual away from target
Reduce dependence on borrowings through diversification of
liability mix
This is seen lowering CoF by ~80 bps to 7.1%
Increase share of retail TD & CASA from ~10.5% currently to
~50%
Higher retail deposit to provide stickiness but competition to remain intense
Profitability
Expansion in NIM to ~5.5% on back of low cost of fund & higher
yield retail asset
Yield accretion, led by rise in retail advances and moderation in CoF favourable for NIM
expansion to ~4.5%. However, remains short of target of 5.5%
Bring down cost-to-income ratio to ~50-55% from 79% for
combined entity
Aggressive branch expansion to keep CI ratio eleveted initially, followed by effiency to
lead to decline in CI ratio to ~56-57% in FY23E
Improvement in NIM & cost to income ratio to enhance return
ratio with RoA target of ~1.4-1.6% & RoE target of ~13-15%
Margin expansion led by retailisation to benefit return ratios. However, delivery to remain
short of target as efficiency to take longer to kick in due to intense competition
Focus on retail and SME to lead to faster growth at 27.2% CAGR to | 106850 crore in
FY23E. Accordingly, proportion of retail segment is to increase from 37% to ~65.6% in
FY23E
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 5
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Investment Rationale
Retailisation to drive operational performance
Erstwhile IDFC Bank has transitioned from an infrastructure financier NBFC
to a bank with an asset mix focusing on retail and corporate segment. Post
the merger, IDFC First Bank envisages becoming a retail centric bank. On the
asset side, the bank manoeuvres to shift focus from corporate loans to
granular retail loans. The bank also endeavors to build a strong and
sustainable retail liability franchise, which could enable better earnings
visibility.
Following are the strategies to shore up operational performance;
Change in loan book mix increasing proportion of towards retail
Retailisation of liabilities and lower dependence on borrowings
Increase in yields and rationalisation in funding cost to drive margin
Transition to retail advances; shedding of erstwhile infra book – accretive for yields
Erstwhile IDFC Bank advances were dominated by wholesale sector
(Wholesale - 72%, Retail - 13%, others - 15%) as of September 2018. The
bank has been engaged in wholesale lending via two sub-segments –
infrastructure finance and corporate loans. Going ahead, the management
plans to run down its infrastructure book (refer Exhibit 10). Within corporate
segment, the bank is to focus towards higher yielding mid-size corporate.
On the retail side, Capital First had a loan book with high yielding segment
including SME/ LAP, two-wheeler and consumer durables. Erstwhile IDFC
Bank had exposure towards rural finance (MFI), SME/MSME and home
loans. Going ahead, the merged bank is seen to retain its product suite
comprising of a wide range of high yield advances including rural financing,
personal loans, auto finance and affordable home loans.
For the merged entity, overall advances comprise ~54% wholesale lending
followed by ~35% retail book. The new management envisions itself as a
retail lender and intends to grow the retail book aggressively compared to
wholesale book. Accordingly, the retail book is seen growing at a faster pace
at 27.2% CAGR in FY19-23E, thereby increasing proportion of retail book to
~65.6% in FY23E. The wholesale book, on the other hand, is expected to
remain stable in absolute terms and witness a decline in proportion from
~48.6% in FY19E to ~29% in FY23E. Corporate book growth is expected at
7.3% CAGR while infrastructure book is to rundown with maturity.
Exhibit 7: Transition from NBFC to bank….
IDFC First
| crore FY15 Q2FY16 H2FY16 FY17 FY18 Q2FY19 Q3FY19
Loan Book 75573 54293 45699 70248 70932 75331 104660
Wholesale 75573 54293 45605 49477 50249 51190 56808
Corporates - - - 18949 26059 29218 34098
Infrastructure 75573 54293 45605 30528 24190 21972 22710
Energy 28016 23059 18435 16395 13617 12877 10753
Transport 17737 13162 10403 8997 7268 7128 7806
Telecom 18279 8133 7917 5388 1864 1548 1084
Other 11541 9939 8850 - 1441 419 3067
Retail - - 93.6 2598 7966 11070 36236
Rural - - - - 3264 4295 4704
SME - - - - 2085 3114 13574
Consumer - - - - 2617 3661 17957
Others* - - - 18173 12717 13071 11616
IDFC BankIDFC Ltd^
Source: Company, ICICI Direct Research, ^ Amounts are approval, *others include PSL certificate & SR
** Loan book consist of advances + credit substitutes
ICICI Securities | Retail Research 6
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Initiating Coverage | IDFC First Bank
The management plans to grow total funded loan book to | 180,000 crore
augmenting its retail asset book from ~| 40812 crore in FY19 to over
| 100,000 crore in the next five to six years thereby reshuffling the asset mix
in favour of retail to ~70% from ~37% currently.
Exhibit 8: Change in asset mix with retail rising from ~37% …
49%
37%
14%
Wholesale Retail Others
Source: Company, ICICI Direct Research
Exhibit 9: ….to ~65% in FY23E
29%
65%
6%
Wholesale Retail Others
Source: Company, ICICI Direct Research
In terms of yields, retail segment is expected to witness decline in yields
ahead to the tune of ~100 bps from ~16.6% in Q3FY19 to ~15.6% in FY23E
(~16.4% in Q4FY19). This decline is attributable to intense competition in
the retail space, which is seen impacting pricing power coupled with higher
budgeted growth in retail loans, which will necessitate disbursement in low
yielding secured retail loans including home loans.
Though yields in retail segment are seen moderating led by broadening of
product profile, proposed rejig in loan book replacing corporate book into
retail lending to remain yield accretive. Accordingly, overall yield for IDFC
First Bank is expected to improve ~140 bps in FY19-23E to 13.1% (11.7% in
Q4FY19). This is led by a shift towards high yielding retail book.
ICICI Securities | Retail Research 7
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Initiating Coverage | IDFC First Bank
Exhibit 10: Improvement seen in YoA led by increasing proportion of retail business
Loan Book (| crore) Q3FY19 FY19 FY20E FY21E FY22E FY23E
Retail 36236 40812 54280 68935 86169 106850
Wholesale 56809 53648 45708 45238 45527 46751
Infrastructure 22710 21459 16094 12071 8048 4025
Corporate 34098 32189 29614 33167 37479 42726
PSL buyout 8575 12924 12020 10818 9519 8092
Stressed asset 3040 3016 2564 2102 1650 1188
Total 104660 110400 114571 127093 142866 162880
% Growth YoY
Retail 33.0 27.0 25.0 24.0
Wholesale (14.8) (1.0) 0.6 2.7
Infrastructure (25.0) (25.0) (33.3) (50.0)
Corporate (8.0) 12.0 13.0 14.0
PSL buyout (7.0) (10.0) (12.0) (15.0)
Stressed asset (15.0) (18.0) (21.5) (28.0)
Total growth (%) 3.8 10.9 12.4 14.0
% Mix
Retail 34.6 37.0 47.4 54.2 60.3 65.6
Wholesale 54.3 48.6 39.9 35.6 31.9 28.7
Infrastructure 21.7 19.4 14.0 9.5 5.6 2.5
Corporate 32.6 29.2 25.8 26.1 26.2 26.2
PSL buyout 8.2 11.7 10.5 8.5 6.7 5.0
Stressed asset 2.9 2.7 2.2 1.7 1.2 0.7
Total 100 100 100 100 100 100
Yields (%)**
Retail 16.6 16.4 16.2 16.0 15.8 15.6
Wholesale 9.5 9.5 9.5 9.5 9.5 9.5
Infrastructure 9.6 9 9 9 9 9
Corporate 9.5 9.9 9.9 9.9 9.9 9.9
PSL buyout 6.4 6.5 6.5 6.5 6.5 6.5
Stressed asset 5.7 5.6 5.6 5.6 5.6 5.6
Total (%) 11.5 11.7 11.9 12.5 12.8 13.1
Source: Company, ICICI Direct Research ** Loan book consist of advances + credit substitutes. Reported yield as of Q4FY19
Focus on retail deposit accretion; reduction in dependence on borrowings
IDFC First Bank, the merged entity, has one of the weakest liability profile,
among peer, led by greater reliance on borrowings & wholesale deposits.
This is attributable to dependence of Capital First Ltd on borrowings and
large chunk of borrowing portfolio (including infrastructure bonds) held by
erstwhile IDFC bank.
For the merged bank, ~89% of the liability constitutes of wholesale funding.
Therefore, the bank aims to embark on aggressive strategy to shore its retail
liability franchise (CASA and retail term deposit) and thus lower its reliance
on borrowing. Accordingly, the management has adopted strategy of
offering higher rates on saving deposits as well as aggressive branch
expansion.
In order to build sustainable deposit base, the bank is offering highest
interest rates on saving and term deposits (refer exhibit below). For
customer acquisition, the bank is targeting ~70 lakh customers (~40-45 lakh
live customers) of CFL in initial stage offering wide range of banking product
and services on the liability side. In addition, CFL’s tie up with ~10,000
dealership (~60% converted to IDFC clients) offer clientele for CA deposits.
Huge scope for CASA improvement
0
5
10
15
20
25
30
35
CASA (%)
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 8
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Initiating Coverage | IDFC First Bank
Exhibit 11: Aggressive SA interest rate compared to peers
Source: Company, ICICI Direct Research
Given importance of reach and age of customer touch points or branches,
the bank has set out a roadmap of a massive branch expansion (compared
to calibrated addition by previous management) with addition of ~600
branches in next five to six years taking the total branch count from 242 in
FY19 to ~800-900 ahead. Majority of these newly branches are to be in
urban & semi-urban areas to garner higher customer density per branch as
well as higher deposits per customer.
The management has aimed at CASA ratio to reach ~30% over the next five
to six years and further aims to touch ~50% in the long run. Further, the
bank is targeting contribution of CASA & retail term deposit to touch ~50%
of total liabilities. Led by focus on customer acquisition and offering
differential interest rates on deposits, we expect CASA per branch to
improve from ~| 38 crore in FY19 to ~ | 52 crore in FY23E, an increase of
~37%. Further, aggressive branch expansion is seen leading to robust
growth in low cost deposits increasing ~4x in FY19-23E. Accordingly, CASA
ratio is seen improving from 12.9% in FY19 to ~24.5% in FY23E. Replacing
legacy borrowings (~| 26000 crore maturating in the next two years) with
retail deposits, though partially, is seen increasing the proportion of deposits
from 50% in FY19 to ~74% in FY23E, while contribution of borrowing is
seen falling from ~50% in FY19 to ~ 26% in FY23E.
The proposed roadmap for retailisation of liabilities ought to reduce
dependence on borrowing and, thus, enable the bank to lower its cost of
fund. Accordingly, we factor in ~80 bps reduction in cost of funds over the
next few years.
Exhibit 12: CASA as percentage of liabilities to rise from ~6%
in FY19
50%
6%
44%
Borrowing CASA Term Deposit
Source: Company, ICICI Direct Research
Exhibit 13: ….to ~18% in FY23E
26%
18%
56%
Borrowing CASA Term Deposit
Source: Company, ICICI Direct Research
Post receiving banking license, erstwhile IDFC Bank being a corporate lender
envisioned becoming a retail bank. Accordingly, the bank strategised to
aggressively target rural area using digital wave to build a strong retail
liability franchise. However, the strategy misfired as the bank was unable to
build a robust base of low cost deposit, attributable to slower growth in
CASA per branch and calibrated branch expansion. The bank CASA per
branch, which was at | 28.3 crore as of FY17 improved to | 38 crore as of
FY19. However, larger peers such as Kotak Bank, Yes Bank & RBL Bank
performed better even on higher base. Kotak Bank’s CASA per branch
SA Deposit
Rates (%)
IDFC
First
RBL
bank
Yes
Bank
Kotak
Bank
Indusind
Bank
AUSFBUjjivan
SFB
Equitas
SFB
Upto | 1 lac 6.00 5.50 5.00 5.00 4.00 5.00 4.00 5.50
| 1 lac- | 10 lac 6.50-7.00 6.00 6.00 6.00 4.00 6.50 4.00-5.50 6.00
| 10 lac- | 1 Crs 7.00 6.50 6.00 6.00 5.00 6.75 5.50-6.75 6.50
Above | 1 Crs 7.00 7.00 6.30 5.50 6.00 6.75 6.8 7.00
ICICI Securities | Retail Research 9
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Initiating Coverage | IDFC First Bank
improved from | 50.6 crore in FY17 to | 74.6 crore in FY19. Yes Bank’s CASA
per branch improved from | 51.9 crore in FY17 to | 66.5 crore in FY19.
Exhibit 14: CASA ratio improves in FY17-9MFY19….
CASA (%) FY2017 FY2018 9MFY2019
IDFC Bank 5.2 11.8 10.4
Bandhan 29.4 34.3 41.4
Yes 36.3 36.5 33.3
RBL bank 22.0 24.3 24.6
Kotak 44.0 50.8 50.7
Ujjivan 3.0 3.7 10.4
Equitas SFB 9.6 15.4 30.5
AU SFB - 32.0 24.0
Source: Company, ICICI Direct Research
Exhibit 15: …remains laggard in CASA accretion per branch
CASA/Branch (|) FY2017 FY2018 9MFY2019
IDFC Bank 28.3 38.1 31.2
Bandhan 8.1 12.4 14.7
Yes 51.9 66.5 66.5
RBL bank 31.8 40.3 44.5
Kotak 50.6 70.4 74.6
Ujjivan 0.0 0.3 1.1
Equitas SFB 1.0 4.2 5.1
AU SFB - 5.7 7.5
Source: Company, ICICI Direct Research
Exhibit 16: IDFC First Bank CASA progression expected to follow Yes Bank’s liabilities trajectory
| in Crore FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 9MFY19 FY19 FY20E FY21E FY22E FY23E FY24E
Yes Bank
Deposits 45939 49152 66956 74192 91176 111720 142874 200738 222758 227610
CASA 4751 7392 12688 16345 21079 31343 51870 73176 74117 75200
CASA % 10% 15% 19% 22% 23% 28% 36% 36% 33% 33%
Branches 214 356 430 560 630 860 1000 1100 1115 1120
CASA/Branch 22.2 20.8 29.5 29.2 33.5 36.4 51.9 66.5 66.5 67.1
IDFC First Bank
Deposit 61915 70478 86503 106026 130008 160478 203807
CASA 6420 9113 14007 20107 28116 39318 44837
CASA% 10% 13% 16% 19% 22% 25% 22%
Branches 206 242 417 567 667 742 862
CASA/ Branch 31.2 37.7 33.6 35.5 42.2 53.0 52.0
Source: Company, ICICI Direct Research
In FY11, Yes Bank had a branch network of 214 with CASA per branch at
| 22 crore. Led by continuous focus on CASA mobilisation and differential
interest rates offered on saving deposits, CASA per branch increased by
~63% in FY11-16 to | 36 crore. Absolute CASA growth remained robust at
45.8% CAGR in FY11-16, attributable to aggressive branch expansion and
improvement in CASA per branch. We believe IDFC First Bank’s current
situation has many similarities when compared with Yes Bank in FY11. With
IDFC First Bank’s strategy of aggressive branch expansion coupled with
differential rates offering, we forecast IDFC First Bank’s branch network
would grow by ~600 branches taking total count to ~806 in FY23E from 206
currently. CASA per branch is seen to grow from ~| 38 crore in FY19 to
~| 52 crore in the next five years. Accordingly, absolute low cost deposit is
seen growing at a robust pace of ~44% CAGR in FY19-23E to | 38741 crore.
We believe IDFC First Bank’s current situation has
many similarities when compared with Yes Bank in
FY11
ICICI Securities | Retail Research 10
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Exhibit 17: Robust CASA mobilisation led by aggressive branch expansion
| crore Q3FY19 FY19 FY20E FY21E FY22E FY23E
Total Deposit 61915 70478 86503 106026 130008 160478
CA 2022 2364 3545 4937 6878 9585
SA 4398 6750 10462 15170 21237 29732
Term Deposit & CD 55495 61365 72495 85919 101893 121160
Bonds/ Borrowing 68615 69983 68946 65783 60925 55302
Total 130530 140461 155449 171809 190933 215780
Funding Mix (%)
Total Deposit 47.4 50.2 55.6 61.7 68.1 74.4
CA 1.5 1.7 2.3 2.9 3.6 4.4
SA 3.4 4.8 6.7 8.8 11.1 13.8
Term Deposit & CD 42.5 43.7 46.6 50.0 53.4 56.1
Bonds/ Borrowing 52.6 49.8 44.4 38.3 31.9 25.6
Total (%) 100 100 100 100 100 100
Cost of Funds (%)
Total Deposit 7.4 7.5 7.3 7.2 7.1 6.9
CA 0 0 0 0 0 0
SA 5.4 6.4 6.4 6.4 6.3 6.2
Term Deposit & CD 7.53 7.6 7.8 7.8 7.8 7.7
Bonds/ Borrowing 8.5 8.3 8.2 8.0 7.8 7.7
Total (%) 8.0 7.9 7.7 7.5 7.3 7.1
Source: Company, ICICI Direct Research
Given proposed retailisation of asset & liabilities, margins are expected to
head north with yield on retail focused sector such as SME, Consumer
durable, two-wheeler, rural & housing are poised to inch up. On the liability
front with maturity of legacy bonds and increasing focus on retail TD & CASA
will help the bank to reduce its cost of fund leading to expansion in margins.
We expect cost of funds to decline ~80 bps from 7.9% in FY19 to ~7.1% in
FY23E.
Building retail franchise to shore up opex; leverage to kick in
IDFC First Bank has been aiming to build a strong and sustainable retail
franchise for business growth ahead. In order to build sustainable deposit
base, the bank plans to adopt aggressive expansion and frontload branch
addition. Accordingly, ~600 branches are to be added in the next five to six
years taking total branch count from 242 in FY19 to ~800-900 ahead. Such
resource addition is seen increasing operational expense in the initial two
fiscals (refer exhibit below) with CI ratio being elevated at ~69% in FY19-
21E. With accretion of business and transition of newly opened branches
towards break even mark, CI ratio is expected to moderate gradually to ~56-
57% in FY23E (management guidance – 50-55%).
ICICI Securities | Retail Research 11
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Exhibit 18: Management plans aggressive branch expansion
150
242
417
567
667
742
0
100
200
300
400
500
600
700
800
FY18 FY19 FY20E FY21E FY22E FY23E
Number of branches
Source: Company, ICICI Direct Research
Exhibit 19: CI ratio to surge initially; moderate as operating leverage entails
72.5
75.0
68.8
63.6
56.8
50
55
60
65
70
75
80
FY19 FY20E FY21E FY22E FY23E
(%)
C-I Ratio (%)
Source: Company, ICICI Direct Research
Asset quality seen steady; credit cost at ~1-1.3% in FY19-23E
Erstwhile IDFC Bank has faced asset quality issues pertaining to legacy
infrastructure book. However, the bank has progressively undertaken
provisions after receiving banking license. With majority of infrastructure
stress either provided or sold to ARC and adequate provision, the worst in
corporate/ infrastructure book seems to behind.
The bank had inherited ~| 44000 crore book from IDFC Ltd with stress loan
of ~| 12000 crore accounting for ~27% of the inherited book. Over the
years, the bank has been able to reduce the stress on that book with effective
sale to ARC & providing adequately. Out of | 12000 crore bank has sold loans
worth | 6800 crore to ARC, | 2600 crore became performing while on
remaining | 2800 crore 80% has been provided. The total provisions since
inception has been | 6500 crore on total infrastructure stress of | 9400 crore.
Led by higher provision, GNPA ratio witnessed a sharp moderation from
6.2% in FY16 to 1.6% in H1FY19.
In case of erstwhile Capital First assets, asset quality remained broadly
stable backed by exposure to granular retail loans and prudent risk
management. GNPA ratio remained in a range of 1.5-2.5%. For the merged
entity, GNPA ratio as of FY19 was at ~2.4%, which increased to 2.66% in
Q1FY20. Apart from NPA, the bank has recognised stressed assets to the
tune of | 3480 crore (excluding ~|1461 crore of exposure), primarily
comprising of legacy infra and corporate accounts.
Credit cost to remain ~ 1% in FY20-23E
2.36
1.91
1.21 1.19
1.30
0.5
1.0
1.5
2.0
2.5
FY19 FY20E FY21E FY22E FY23E
Credit Cost(%)
Source: Company, ICICI Direct Research
Stressed asset recognized in Q4FY19
| crore Exposure Provision
Financial Company
HFC
Toll project 1006 154
Other Infra 810 570
Total 3277 1820
1461 1096
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 12
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Exhibit 20: Asset quality trend for IDFC First Bank
| crore IDFC Ltd
FY15 Q2FY16 H2FY16 FY17 FY18 Q2FY19 Q3FY19 FY19
GNPA (| crore) 358 1467 3058 1542 1779 895 1671 2136
GNPA (%) 0.7 3.2 6.2 3.0 3.3 1.6 1.97 2.4
Stressed asset* 2105 2225 2155 3480
PCR (%) 70 81.5 72.9 55.9
Security Receipt 1984 1712 1672 1650
Provision on SR (%) 9.879032 11.4486 11.72249 11.87879
IDFC Bank IDFC First
*Stressed asset do not include exposure of | 1461 crore, classified into investments, wherein loans have been recognized
Source: Company, ICICI Direct Research
Exhibit 21: Sectoral breakup of GNPA (Q1FY20)
| crore GNPA Provision
Transport 819 471
Real Estate 291 75
Energy & Power 115 18
Trade 64 48
Textile 39 39
Rubber, Plastics and Products 25 11
Others including Retail Segments 1065 540
Total 2,419 1,203
Source: Company, ICICI Direct Research
Going ahead, the management plans to run down the erstwhile infra book.
Therefore, risk of bulky slippages is ruled out. Lower corporate slippages
and granular retail loans is seen leading to paring down of GNPA ratio to
~2.2% in FY23E. However, given the intense competition in the retail
segment and the bank’s plan to increase proportion of retail book, credit cost
is seen at ~110 – 130 bps in FY21-23E. However, credit cost for FY20E is
expected to remain elevated at 190 bps on the back of exposure towards
stressed companies recognised in the watch list.
Exhibit 22: GNPA to witness gradual decline ahead…..
2.0
2.7
2.6
2.4
2.2
1.0
1.5
2.0
2.5
3.0
FY19 FY20E FY21E FY22E FY23E
(%)
GNPA (%)
Source: Company, ICICI Direct Research
Exhibit 23: ….steady PCR to lead to improving NNPA
1.01
1.37
1.201.24 1.23
0.3
0.5
0.7
0.9
1.1
1.3
1.5
FY19 FY20E FY21E FY22E FY23E
(%)
NNPA (%)
Source: Company, ICICI Direct Research
Retailisation to drive RoA; below target due to higher opex
We expect return ratios to improve steadily with RoA seen at ~1% and RoE
to ~11% by FY23E led by (1) improvement in yield led by tilt towards high
yielding retail loans, (2) higher CASA accretion thereby lowering CoF, (3)
better growth in fee based income (4) broadly steady quality restricting
concerns on credit cost, and (5) adequate capital to fund future growth ruling
out any dilution in near term. Though we expect growth in high yielding
retail advances to drive improvement in return ratios with support from
declining CoF. However, higher opex related to building retail franchise is
ICICI Securities | Retail Research 13
ICICI Direct Research
Initiating Coverage | IDFC First Bank
seen acting as a deterrent. Therefore, we expect a substantial improvement
in return ratios with the bank poised to deliver RoA of ~1% and RoE of
~11% in FY23E. However, this was behind the management’s target of 1.4-
1.5% and 13-15% in the next five years.
Exhibit 24: RoA to improve steadily
-1.12
-0.14
0.37
0.66
1.01
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
ROA (%)
(%)
FY19 FY20E FY21E FY22E FY23E
Source: Company, ICICI Direct Research
Exhibit 25: RoE to improve to ~11% in FY23E
-9.8
-1.4
3.9
7.2
11.3
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
ROE (%)
(%)
FY19 FY20E FY21E FY22E FY23E
Source: Company, ICICI Direct Research
Exhibit 26: NII trend
4287
5342
6263
7827
9933
0
2000
4000
6000
8000
10000
12000
NII (| crore)
(| crore)
FY19 FY20E FY21E FY22E FY23E
Source: Company, ICICI Direct Research
Exhibit 27: PAT trend
-1641
-247
712
1388
2362
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
3000
PAT (| crore)
(| crore)
FY19 FY20E FY21E FY22E FY23E
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 14
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Exhibit 28: RoA tree
(%) FY19 FY20E FY21E FY22E FY23E
Interest Earned 8.8 9.6 9.7 10.1 10.4
Interest Expended 6.1 6.5 6.4 6.3 6.2
Net Interest Income 2.7 3.1 3.3 3.7 4.2
Non Interest Income 0.7 0.8 0.9 0.9 1.0
Net Income 3.4 3.8 4.1 4.7 5.3
Staff cost 0.6 0.8 0.9 0.9 0.9
Other expense 1.9 2.0 2.0 2.1 2.1
Opex 2.5 2.9 2.8 3.0 3.0
Operating profit 0.9 1.0 1.3 1.7 2.3
Provisions 1.2 1.2 0.8 0.8 0.8
PBT -0.3 -0.3 0.5 0.9 1.4
Taxes -0.9 -0.1 0.2 0.3 0.4
RoA -1.0 -0.1 0.4 0.7 1.0
Leverage 9.5 9.7 10.4 10.9 11.2
RoE -9.8 -1.4 3.9 7.2 11.3
Source: Company, ICICI Direct Research
Exhibit 29: Comparative RoA for FY21E
FY21E (%) IDFCB RBL DCB FED YES EQUITAS UJJIVAN
Interest Earned 9.7 9.3 9.3 8.1 7.8 14.8 15.9
Interest Expended 6.4 5.6 5.8 5.0 4.8 6.9 7.2
Net Interest Income 3.3 3.7 3.5 3.1 3.0 7.9 8.8
Non Interest Income 0.9 1.8 1.0 0.7 1.4 1.7 1.8
Net Income 4.1 5.5 4.5 3.8 4.3 9.6 10.5
Staff cost 0.9 1.0 1.2 0.9 0.7 3.0 3.7
Other expense 2.0 1.8 1.5 1.0 1.0 1.9 2.7
Opex 2.8 2.8 2.7 1.9 1.7 4.9 6.4
Operating profit 1.3 2.7 1.8 2.0 2.6 4.0 3.8
Provisions 0.8 0.6 0.5 0.5 0.7 0.9 1.0
PBT 0.5 2.1 1.3 1.5 1.9 3.1 2.7
Taxes 0.2 0.7 0.4 0.5 0.6 1.1 0.9
RoA 0.4 1.4 1.0 1.0 1.3 2.0 1.8
Leverage 10.4 11.3 14.9 12.6 14.5 7.7 8.4
RoE 3.9 15.8 14.9 12.6 18.8 15.4 15.1
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 15
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Financials
Erstwhile IDFC Bank delivered subdued returns on the back of higher opex
and provision related to legacy infra book. Post merger, the bank plans to
focus on retail & MSME segment to drive growth. Accordingly, the merged
bank plans to pedal aggressive branch expansion, which will keep CI ratio
elevated. As of FY19, CASA is at ~13% of overall deposits. We expect
advances (net) to grow at ~10% CAGR in FY19E-23E to | 161336 crore while
deposit is expected to grow robustly at 23% CAGR in FY19-23E to | 160478
crore. Improvement in margins to ~4.5% by FY23E and stable asset quality
is seen to boost return ratios. Accordingly, RoA & RoE is seen at ~1% and
~11.1%, respectively, by FY23E.
Exhibit 30: Advances to grow at ~11% CAGR in FY19-23E led by retail segment
109,369 113,075
125,363
141,178
161,336
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
FY19 FY20E FY21E FY22E FY23E
(| crore)
Advances (| crore ) Deposit (| crore)
Source: Company, ICICI Direct Research
Exhibit 31: Efficiency improvement to lead to PAT growth
4287
5342
6263
7827
9933
-1641-247
7121388
2362
-3500
-1500
500
2500
4500
6500
8500
10500
FY19E FY20E FY21E FY22E FY23E
(| crore)
NII (| crore) PAT (| crore)
Source: Company, ICICI Direct Research
Exhibit 32: Increase in retail advances to shore up margins
3.33.4
3.7
4.1
4.5
0.0
1.0
2.0
3.0
4.0
5.0
FY19E FY20E FY21E FY22E FY23E
(%)
NIMs (%)
Source: Company, ICICI Direct Research
Exhibit 33: Stable asset quality….
2137
30423230
3441 3522
2.0
2.72.6
2.4
2.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
500
1000
1500
2000
2500
3000
3500
4000
FY19E FY20E FY21E FY22E FY23E
(%)
(| crore)
GNPA (| crore) GNPA Ratio (%)
Source: Company, ICICI Direct Research
Exhibit 34: ….to support gradual improvement in return ratio
(1.1)
(0.1)0.4 0.7 1.0
(1.4)
3.9
7.2
11.3
(9.5)
(4.5)
0.5
5.5
10.5
FY19E FY20E FY21E FY22E FY23E
(%)
ROA (%) ROE (%)
Source: Company, ICICI Direct Research
Merger of IDFC Bank and Capital First has led to
creation of goodwill of ~| 2400 crore. Pursuant to
decision to amortise goodwill, the bank had an
exceptional charge in Q3FY19 resulting in losses in
the quarter. This transaction has led to creation of
deferred tax liability (DTL); utilisation of the same
could reduce tax burden ahead. However, we have
not factored it in our estimates
ICICI Securities | Retail Research 16
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Risk and concerns
Continuity of new management team and skilled personnel
IDFC First Bank will led by the new MD & CEO, Mr Vaidyanathan. Therefore,
strong management and its execution skills remain the key investment
theme. In Capital First (NBFC), the new MD has successfully demonstrated
his expertise in establishing & developing a retail business with a strong
track record. The company’s performance is highly dependent on the
continued services of its management team. In particular, this includes the
efforts of its Managing Director & CEO –V Vaidyanathan along with other
experienced members of its Board of Directors & senior management. The
company’s turnaround is highly dependent on continued service of top
managerial teams. Any loss of a key personnel or inability to replace key
personnel may restrict its ability to grow and manage the overall running of
operations.
Building strong liability franchise remains key challenge
IDFC First Bank has one of the weakest liability profile with greater reliance
on borrowings & wholesale deposits. Nearly 89% of the liability constitutes
of wholesale borrowing. This leads to ALM mismatch as well keeps cost of
funds higher. Given competition from larger banks & small finance banks is
getting intense, company faces challenge of garnering deposits to shore up
its liabilities franchise. In addition, the bank has to shore up deposit base to
replace slew of infra bonds slated to mature in next two to four years.
Cost associated with retailisation poses risk on earnings
The new management is adopting a strategy to focus on retailisation of both
sides of business i.e. assets as well as liabilities. Accordingly, the bank needs
to build higher number of customer touch points (branches and ATM). This
will lead to frontloading of operating expenses and thereby increase CI ratio.
However, incurring of high expenditure to improve its presence does not
guarantees robust accretion of deposits. Failure on garnering healthy
traction in liability franchise could impact earnings trajectory and thereby
our estimates.
Asset quality risk of erstwhile IDFC bank infra book
The new management plans to run down its erstwhile infrastructure book
over the next five to six years. However, one of the major risk lies in any
incremental pain arising of infra book. Though IDFC First Bank has adequate
provision related to infra book, any undue surprise out of outstanding book
of ~| 22700 crore could impact profitability and return ratios going ahead.
Exposure to high yield book of Capital First entails default risk
Being a retail focused lender, erstwhile Capital First had concentration
towards SME/LAP at ~40%. Any slowdown in the economy would largely
impact the SME/LAP as the sector is closely linked to the economy. This can
derail the growth trajectory being factored in our assumptions.
ICICI Securities | Retail Research 17
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Valuation
IDFC First Bank will be led by the new MD & CEO, Mr Vaidyanathan.
Therefore, strong management and its execution skills remain the key
investment theme for IDFC First Bank. In Capital First (NBFC), the new MD
has successfully demonstrated his expertise in establishing & developing a
retail business with a strong track record. With the new management’s thrust
on improving CASA driven by aggressive branch expansion and focusing
on retail loans, we expect return ratios to improve substantially from hereon.
IDFC First Bank is poised to clock ~10% CAGR in advances, with traction
in retail segment at ~26% and corporate remaining flattish shedding infra
book currently to ~| 21459 crore. With improving return ratios, RoA is seen
increasing to 0.4% by FY21E and 1% by FY23E and RoE to 4% by FY21E
and 11% by FY23E.
Recent recognition to stress pool largely from corporate book led to
marginal deterioration in asset quality. However, more than required
provisions on it gives us higher comfort on asset quality & future trajectory
of credit cost.
In the banking domain, NIM and RoE remains important parameter defining
fundamental strength and valuation of a bank. With NIM anticipated at 4%
ahead, we compare IDFC First Bank with universal bank delivering superior
margin including HDFC Bank, IndusInd Bank and Kotak Mahindra Bank (refer
side table). IDFC First Bank’s, sustainable RoE being relatively lower at 10%
vs 16-17% of aforesaid banks, a 50% discount to their valuation of ~3x
P/ABV is justified for IDFC First Bank. Consequently, we assign a target
multiple of ~1.5x on FY21E ABV and arrive at target price of | 54 per share.
We initiate coverage with BUY rating from a 12-18 months perspective.
Exhibit 35: Valuation Comparison
FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
IDFC First Bank (12.6) (83.9) 29.1 1.1 1.2 1.1 (1.1) -0.1 0.4 (9.8) -1.4 3.9
DCB 18.5 15.5 12.1 2.1 1.9 1.6 1.0 1.0 1.1 12.1 12.9 14.4
Yes Bank 11.4 12.6 9.3 0.6 0.6 0.6 0.4 0.4 0.5 5.6 5.5 6.6
RBL 18.0 16.1 11.4 2.1 1.7 1.5 1.2 1.1 1.3 12.2 12.0 14.4
P/E (x) P/B (x) ROA (%) ROE (%)
Source: Company, ICICI Direct Research
Exhibit 36: Key Parameters
(| crore) IDFC First Yes Bank DCB RBL AU SFB Equitas Ujjivan
Advances (Q1FY20) 112558 236300 24044 56837 23102 12355 11783
Deposit (Q1FY20) 66226 225902 28789 60811 19849 8670 7956
CASA (%) (Q1FY20) 15.1 30.2 24.5 25.8 19.0 16.3 10.4
Net Profit (Q1FY20) (617) 114 81 267 190 62 94
P/E (x) (FY21E) 29.1 9.3 12.1 11.4 26.4 7.9 9.2
P/BV (x) (FY21E) 1.1 0.6 1.6 1.5 4.1 1.1 1.3
RoA (%) (Q1FY20) (1.5) 0.1 0.9 1.3 1.4 1.5 2.7
RoE (%) (Q1FY20) NA 1.6 11.2 13.8 14.7 9.8 20.2
CD ratio (%) (Q1FY20) 170.0 104.6 83.5 93.5 116.4 142.5 148.1
NIMs (%) (Q1FY20) 3.01 2.9 3.7 4.3 5.0 8.6 10.5
Source: Company, ICICI Direct Research
Exhibit 37: Valuation comparison- SFB
FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
IDFC First Bank (12.6) (83.9) 29.1 1.1 1.2 1.1 (1.1) (0.1) 0.4 (9.8) (1.4) 3.9
AU SFB 52.0 35.2 26.4 6.3 5.1 4.1 1.5 1.5 1.5 14.0 15.6 16.8
Equitas SFB 17.1 11.5 7.9 1.5 1.3 1.1 1.5 1.6 1.7 9.0 12.4 15.3
Ujjivan SFB 17.5 12.9 9.2 1.8 1.6 1.3 1.7 1.9 1.9 10.7 13.4 16.0
ROA (%)P/B (x)P/E (x) ROE (%)
Source: Company, ICICI Direct Research
We expect NII to grow at ~21% CAGR in FY19E-21E to | 6263 crore, while
PAT is expected to turn profitable at | 712 crore in FY21E from loss of | 247
Comparative valuation
Bank RoE (%) NIM (%)P/ABV (FY21E)
HDFC Bank 16.8 4.5 3.2
IndusInd Bank 19.0 4.2 2.3
Kotak Bank 13.5 4.2 4.1
Average 16.4 4.3 3.2
Source: ICICI Direct Research
ICICI Securities | Retail Research 18
ICICI Direct Research
Initiating Coverage | IDFC First Bank
crore in FY20E. Change in asset mix towards retail will lead to improvement
in yield on advances. At the same time focus on tapping CASA & retail term
deposit to lower CoF leading to improvement in margins at ~3.7% by
FY21E.
ICICI Securities | Retail Research 19
ICICI Direct Research
Initiating Coverage | IDFC First Bank
Financial Summary
Exhibit 38: Profit & Loss Statement
(| Crore) FY18 FY19E FY20E FY21E FY22E FY23E
Interest Earned 9,098.5 13,998 16,706 18,550 21,138 24,429
Interest Expended 7,126.0 9,710 11,364 12,288 13,312 14,496
Net Interest Income 1,972.5 4,287 5,342 6,263 7,827 9,933
Growth (%) - 117 25 17 25 27
Non Interest Income 1,119.9 1,092 1,340 1,632 1,990 2,431
Fees and advisory 433.3 542 683 860 1,084 1,365
Treasury Income 394.0 236 296 355 426 511
Other income 292.5 314 362 417 481 555
Net Income 3,092.4 5,380 6,682 7,894 9,817 12,364
Employee cost 786.4 945 1,453 1,712 1,857 2,053
Other operating Exp. 1,010.5 2,952 3,556 3,723 4,388 4,971
Operating Income 1,295.5 1,482 1,673 2,459 3,571 5,340
Provisions 160.3 1,904 2,122 1,443 1,588 1,965
PBT 1,135.2 (422) (449) 1,017 1,983 3,374
Exceptional items 2,599.0 - - - -
Taxes 179.7 (1,381) (202) 305 595 1,012
Net Profit 955.5 (1,641) (247) 712 1,388 2,362
Growth (%) - (272) (85) (388) 95 70
EPS (|) 2.8 (3.4) (0.5) 1.5 2.9 4.9
Source: Company, ICICI Direct Research
Exhibit 39: Balance Sheet
(| Crore) FY18 FY19E FY20E FY21E FY22E FY23E
Sources of Funds
Capital 3,404 4,782 4,782 4,782 4,782 4,782
Reserves and Surplus 11,870 13,417 13,195 13,835 15,085 17,211
Networth 15,274 18,199 17,977 18,617 19,867 21,992
Deposits 48,039 70,478 86,503 106,026 130,008 160,478
Borrowings 57,287 69,983 68,946 65,783 60,925 55,302
Other Liabilities & Provisions 5,781 8,562 8,764 8,972 9,508 10,086
Total 126,382 167,222 182,189 199,398 220,307 247,859
Application of Funds
Fixed Assets 800 899 943 995 1,057 1,130
Investments 60,904 44,582 49,040 55,170 63,445 72,962
Advances 52,165 109,369 113,075 125,363 141,178 161,336
Other Assets 7,636 6,971 13,194 11,343 7,451 4,542
Cash with RBI & call money 4,877 5,401 5,937 6,527 7,176 7,889
Total 126,382 167,222 182,189 199,398 220,307 247,859
Source: Company, ICICI Direct Research
Exhibit 40: Growth Ratios
(% growth) FY18 FY19E FY20E FY21E FY22E FY23E
Total assets 32.3 9.0 9.4 10.5 12.5
Advances 109.7 3.4 10.9 12.6 14.3
Deposit 46.7 22.7 22.6 22.6 23.4
Total Income 47.7 19.6 11.8 14.6 16.1
Net interest income 117.4 24.6 17.2 25.0 26.9
Operating expenses 116.9 28.5 8.5 14.9 12.5
Operating profit 14.4 12.9 47.0 45.2 49.5
Net profit (271.7) (85.0) (388.3) 95.1 70.2
Net worth 19.1 (1.2) 3.6 6.7 10.7
EPS (222.2) (85) (388) 95 70
Source: Company, ICICI Direct Research
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ICICI Direct Research
Initiating Coverage | IDFC First Bank
Exhibit 41: Key ratios
FY18 FY19E FY20E FY21E FY22E FY23E
Valuation
No. of shares (crore) 340.4 478.2 478.2 478.2 478.2 478.2
EPS (|) 2.8 (3.4) (0.5) 1.5 2.9 4.9
DPS (|) 0.8 - (0.0) 0.1 0.2 0.4
BV (|) 44.9 38.1 37.6 38.9 41.5 46.0
ABV (|) 42.3 35.7 34.4 35.8 37.9 41.9
P/E 14.5 (11.9) (78.8) 27.3 14.0 8.2
P/BV 0.9 1.1 1.1 1.0 1.0 0.9
P/ABV 1.0 1.1 1.2 1.1 1.1 1.0
Yields & Margins (%)
Net Interest Margins 2.8 3.4 3.7 4.1 4.5
Yield on assets - 9.0 10.6 10.8 11.0 11.1
Avg. cost on funds - 7.9 7.7 7.5 7.3 7.1
Yield on average advances - 10.6 11.9 12.5 12.8 13.1
Avg. Cost of Deposits - 7.5 7.3 7.2 7.1 6.9
Quality and Efficiency (%)
Cost to income ratio 58.1 72.5 75.0 68.8 63.6 56.8
Credit/Deposit ratio 108.6 155.2 130.7 118.2 108.6 100.5
GNPA 3.4 2.0 2.7 2.6 2.4 2.2
NNPA 1.7 1.0 1.4 1.2 1.2 1.2
ROE 6.3 (9.8) (1.4) 3.9 7.2 11.3
ROA 0.8 (1.1) (0.1) 0.4 0.7 1.0
RWA/assets 68.0 69.0 70.0 71.0 72.0
RWA/ NW 16.0 14.3 13.3 12.7 12.3
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 21
ICICI Direct Research
Initiating Coverage | IDFC First Bank
RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as
the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities | Retail Research 22
ICICI Direct Research
Initiating Coverage | IDFC First Bank
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