¾ IDFC Ltd (consolidated) has net worth of Rs.100 bn which implies BV/share at Rs.63. On consolidated basis, they reported Rs.1.76 bn of PAT during Q3FY16 on back of strong operating income (Rs.7.7 bn) with non-interest income at Rs.3.2 bn. We are valuing IDFC Ltd on SOTP after giving 40% holding company discount as there are two step-up subsidiaries for banking operation. We are valuing banking business at Rs.83 (2.0x FY17E ABV; Rs.89 earlier) which has started banking operation on strong footing (provision buffer of ~10%). Its premium valuation given the modest return ratios (7-10% in FY17/18E) is justified by the strong capital position (19.6% Tier-I capital), strong growth trajectory and FII ownership headroom. Post 40% holdco discount, fair value for IDFC ltd/share comes at Rs.80 (Rs.84 earlier) and hence we retain BUY rating on the stock.
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