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Ready to take off
This new private sector bank has strategies in place for strong and quality growth ahead
| IDFC Bank |
| 539437 |
| B |
| IDFCBANK |
| INE092T01019 |
| IDFCBK@IN |
| N/A |
| Rs 10 |
| Rs 73 / Rs 43 |
| Rs 52 (as on 29th July 2016) |
Headquartered in Mumbai, IDFC Bank is a universal bank, offering financial solutions through its nationwide branches, internet and mobile. Envisioned as a new age bank, IDFC Bank seeks to set a new standard in customer experience, using technology and a service-oriented approach, to make banking simple and accessible, anytime and from anywhere.
IDFC Bank was incorporated on October 21,2014 as a Company under the Companies Act, 2013. Further to the grant of the banking license by the RBI on July 23, 2015 and approval of the Scheme of Arrangement between IDFC Limited and IDFC Bank Limited and their respective shareholders and creditors, IDFC Bank Limited commenced its Banking operations on October 1,2015.
In keeping with IDFC's legacy of building the nation, IDFC Bank will focus on serving the rural underserved communities and the self-employed, while continuing to support the country's infrastructure sector.
IDFC Bank provides customized financial solutions to corporates, individuals, small and micro-enterprises, entrepreneurs, financial institutions and the government. With best-in-class corporate governance, rigorous risk management, experienced management and a diversified team, IDFC Bank is uniquely positioned to meet the aspirations of its customers.
June 2016 quarter results (q-o-q variation)
In June 2016 quarter, the Bank reported 9% increase, on qoq basis, in the interest earned at Rs 1975.45 crore, while interest expenses moved up 6% to Rs 1476.57 crore. NII jumped 20% qoq to Rs 498.88 crore.
Operating profit moved up 67%, qoq, to Rs 434.87 crore.
Provisions and contingencies increased to Rs 23.61 crore during quarter ended June 2016 from Rs 11.89 crore in the previous quarter Q4FY2016.
The profit before tax moved up 66%, qoq, to Rs 411.26 crore in the quarter ended June 2016.
Tax provision stood at Rs 146.50 crore. The effective tax rate increased to 35.6% in Q1FY2017 from 33.4% in Q4FY2016. Net profit increased to Rs 264.76 crore in Q1FY2017 from Rs 165.06 crore in Q4FY2016.
Expense ratio improves
The total operating expenses declined 7% qoq to Rs 249.06 crore in Q1FY2017. Employee cost declined 3%, qoq, to Rs 131.58 crore, while the other operating expenses also fell 11% to Rs 117.49 crore. The total operating expenses declined 7% to Rs 249.06 crore. Expense ratio improved to 38.9% in Q1FY2017 from 53.1% in Q4FY2016.
NIM improves driven by higher cash realization on stressed portfolio
Bank has improved net interest margin (NIM) to 2.4% in Q1FY2017 from 2.1% in Q4FY2016 and 2% in Q3FY2016, driven by higher cash realization on stressed portfolio.
Asset quality improves
Bank has showed marginal improvement in the asset quality in Q1FY2017.
Gross NPA and Net NPA of the Bank stood at Rs 3030 crore and Rs 1111 crore at end June 2016, showing decline from Rs 3058.30 crore and Rs 1139.04 crore at end March 2016.
Gross NPA ratio has declined to 6.09%, while Net NPA ratio also eased to 2.32% end June 2016 over March 2016 levels of 6.16% and 2.39% respectively.
Outstanding standard restructured advance book of the bank has remained flat at 2.9% at end June 2016 from March 2016.
Net Worth and Capital Adequacy
Net worth of the Bank stood at Rs. 13,903 crore as on June 30 2016, as compared to Rs 13,633 crore on March 2016.
Capital Adequacy Ratio (CRAR) of the Bank, computed as per Basel III guidelines stood at 20.39% as at the end of the quarter.
Tier 1 Capital adequacy ratio stood at 19.91%.
Focusing on improving the share of non-fund business in total credit
The business (deposits + net advances) of the bank increased 9%, qoq, to Rs 58943 crore at end June 2016
Funded Credit (Net Advances + NCDs) grew 4% to Rs 50410 crore end June 2016 from Rs 48474 crore end March 2016. Total Credit (Funded Book + Non Funded Book) grew 7% to Rs 57470 crore end June 2016 from Rs 53580 crore end March 2016.
The share of non-funded book has increased to 13% from 11% in Q1FY2017. The bank is focusing on improving the share of non-fund business in total credit.
CASA ratio is at 6.7%
Deposits grew 59%, qoq, stood at Rs 13029 crore with CASA deposits at Rs 869 crore and Term Deposits at Rs 12160 crore at end June 2016. The CASA ratio of the bank stood at 6.7% at end June 2016 compared with 9.5% end March 2016. The bank has opened 5815 savings accounts during the quarter (incl 2229 corporate salary accounts), while also added 666 current accounts in Q1FY2017. The Bank has booked Rs 378 crore worth of fixed deposits in Q1FY2017.
More than 98% of its customers are retail clients
The customer base of the bank has expanded to 60000 at end June 2016, of which 59000 customers were in the retail segment. The customer acquisition rate has picked up to 14000 per month.
IDFC Bank continued to strengthen its suite of retail offerings during the quarter. It introduced home loan products and a range of specialized digital offerings for customers in the business banking segment.
Under Commercial and Wholesale Banking, the Bank diversified its relationships further in the non-infrastructure segment by offering a wider range of solutions, while continuing to expand and cater to new clients in the infrastructure segment
Hopes to become a mass retail bank
The bank aims to rapidly increase retail share in total advances across all customer segments to raise average asset yield.
The bank would tap customers from all segment ¨C affluent, mass affluent and mass market, by filling up the gaps in identified products and services and judiciously using price incentives. Bank is offering integrated CASA account to the affluent customers and services such as door-step banking. For account opening, the Aadhaar based quick account opening services is offered.
Bank is offering higher interest rates on deposits, while do not charge anything on early withdrawals. Bank is also providing unlimited free ATM transitions.
The bank is offering retails loans at competitive rates than non-bank competitors.
Bank would be pursuing cost effective acquisition at scale especially of mass affluent and mass retail customers for deposit mobilization to bring down cost of funds.
The cost of customer acquiring and servicing the customer is managed through focus on technology. The opposes to reduce the number of bank branches per customer and number of bank employees per customer
Plans for Corporate Banking
Corporate customer base is proposed to be diversified beyond large corporate segment to raise spreads.
Special focus is provided on expanding the share of mid©\market, SME and Government Banking customer segments.
On revenue side, the corporate banking revenues would be diversified beyond funded products to non©\funded and fee based sources to improve RoAs.
The bank has 663 corporate customers as on June 2016 with 190 new to bank customers in Q1 FY17. Of 663, 74 are SME and 78 are Government/ Transaction Banking customers. Bank serves 89 unique clients for cash management and 150 active customers for trade.
Franchise based fee income (from clients) gaining momentum at 40% of non©\interest income
Network expansion
Bank has network of 65 branches (of which 50 branches in Bharat Banking, 11 in Consumer Banking and 8 in Commercial & Wholesale Banking), 14 ATMs and 330 Micro ATMs at end June 2016. Bank has added 05 branches in the quarter ended June 2016
It expanded its network in Madhya Pradesh and expanded into Karnataka and Andhra Pradesh.
To deepen financial inclusion, the bank is placing a special focus on segments such as marginal farmers, micro enterprises and the self-employed.
Acquisition of Grama Vidiyal Micro Finance
In July 2016, IDFC Bank signed a share purchase agreement to acquire 100% of Grama Vidiyal Micro Finance, one of the largest microfinance institutions in the country. Upon completion of acquisition, Grama Vidiyal will be a wholly-owned subsidiary of IDFC Bank. The acquisition will give IDFC Bank immediate access to 1.2 million rural and semi-urban households and Grama Vidiyal's network of 319 locations across 65 districts of Tamil Nadu, Kerala, Karnataka, Pondicherry, Maharashtra, Gujarat and Madhya Pradesh will act as BC centres to IDFC Bank.
Goals for FY2017
The bank has following goals for retail banking, corporate banking and network distribution.
Network Distribution
Bank proposes to improve point of presences to 1400 points (10 states, 55 districts and 20 cities) by March 2017 from 409 points end June 2016.
The Micro ATM count will jump to 1000 by March 2017 from 330 end June 2016. As per the bank, the cost of the micro ATMs is 1/15th of the normal ATM, while the functionality is five times higher.
The acquisition of Gram Vidiyal MFI will add 306 branches spread across 6 states.
Bank's own branches will rise to 74 by end March 2017.
Retail Banking
Retail banking customer base is proposed to be raised to 1.5 million (including customers from Grama Vidiyal Acquisition) by end March 2017 from 60000 at end June 2016. The pace of customer acquisition is proposed to be raised to 20000-25000 per month from existing 14000.
Retail advances book is aimed to improve to Rs 18000 crore (including customers from Grama Vidiyal Acquisition) by March 2017 from Rs 4500 crore at end June 2016, which will be 25% of bank¡¯s total advances from 10%.
The overall loan book is targeted to grow to Rs 70000-75000 crore by end March 2017.
CASA deposits are expected to rise to Rs 2800 crore accounting for 12% of total deposits of the bank by end March 2017.
Corporate banking
The share of outside of large corporates advances is proposed to be raised to 25%. Mid©\corporate and SME are expected to contribute 5% to funded credit.
The share of non©\fund book to funded book is expected to increase to 20% from 13%
The share of franchise based fee income is expected to remains stable at 35-40% of non©\interest income.
Fees would contribute 10% of total corporate revenues
Book Value
Book Value per share stood at Rs 41 per share at end June 2016, while adjusted book value (net of NNPA and 10% of restructured advances) stood at Rs 37.3 per share at end June 2016.
Valuation
We expect the Bank to register EPS of Rs 3.3 in FY 2017. The share price trades at Rs 52. P/E on FY 2017 projected EPS works out to 15.7. Current price discounts its current adjusted book value of Rs 37.3 by 1.4 times.
| 1603 (12) | 1703 (12P) | |
| Int. Earned | 3648.83 | 8588.91 |
| Int. Exp. | 2801.50 | 6419.87 |
| Net Int. Inc. | 847.33 | 2169.04 |
| Other Inc. | 403.20 | 851.32 |
| Net Total Inc. | 1250.53 | 3020.36 |
| Op. Exp. | 510.58 | 1228.61 |
| OP | 739.95 | 1791.75 |
| Prov. & Cont. | 24.18 | 118.05 |
| PBT | 715.76 | 1673.70 |
| Tax | 248.91 | 552.32 |
| Net Profit | 466.85 | 1121.38 |
| EPS*(Rs) | 1.4 | 3.3 |
| * Annualized on current equity of Rs 3394.85 crore; Face Value: Rs 10, IDFC Bank commenced its Banking operations on October 1,2015 (P): Projections Figures in Rs crore Source: Capitaline Databases | ||
| 1606 (3) | 1603 (3) | 1512(3) | 1603 (12) | |
| Int. Earned | 1975.45 | 1815.54 | 1789.09 | 3648.83 |
| Int. Exp. | 1476.57 | 1398.72 | 1402.79 | 2801.50 |
| Net Int. Inc. | 498.88 | 416.82 | 386.31 | 847.33 |
| Other Inc. | 212.83 | 137.66 | 217.93 | 403.20 |
| Net Total Inc. | 711.71 | 554.48 | 604.24 | 1250.53 |
| Op. Exp. | 276.83 | 294.65 | 215.32 | 510.58 |
| OP | 434.87 | 259.83 | 388.91 | 739.95 |
| Prov. & Cont. | 23.61 | 11.89 | 12.29 | 24.18 |
| PBT | 411.26 | 247.94 | 376.62 | 715.76 |
| Tax | 146.5 | 82.88 | 134.45 | 248.91 |
| Net Profit | 264.76 | 165.06 | 242.17 | 466.85 |
| EPS*(Rs) | 3.1 | 1.9 | 2.9 | 1.4 |
| * Annualized on current equity of Rs 3394.85 crore; Face Value: Rs 10, IDFC Bank commenced its Banking operations on October 1,2015 Figures in Rs crore Source: Capitaline Databases | ||||
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