IDFC First Bank IDFBAN) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_IDFCFirstBank...(HDFC, IndusInd & Kotak Bank). IDFC First Bank’s, sustainable RoE being relatively

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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

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0

20

40

60

80

100

Aug-1

9

May-1

9

Jan-1

9

Oct-

18

Jun-1

8

Mar-

18

Dec-1

7

Aug-1

7

May-1

7

Jan-1

7

Oct-

16

Jul-16

IDFC First Bk (R.H.S) Nifty (L.H.S)

Source: ICICI Direct Research, Company

Research Analyst

Kajal Gandhi

[email protected]

Vishal Narnolia

[email protected]

Harsh Shah

[email protected]

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


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




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


Exhibit 4: Advances break-up - IDFC Bank (Q2FY19)

11%

37%

34%

10%

8%

Retail Corporate Infrastructure PSL Buyout SR


Exhibit 5: Advance break-up - Capital First (Q2FY19)

40%

14%

10%

17%

13%

6%

SME/LAP Consumer Two Wheeler

Business Loans Others Wholesale


Going ahead, the management has penned down a roadmap for the bank

for the next five to six years.




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





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




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


Exhibit 9: ….to ~65% in FY23E

29%

65%

6%

Wholesale Retail Others


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.




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 (%)





Exhibit 11: Aggressive SA interest rate compared to peers


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


Exhibit 13: ….to ~18% in FY23E

26%

18%

56%

Borrowing CASA Term Deposit


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




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


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


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


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




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


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%).




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


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 (%)


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


Credit Cost(%)


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




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


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


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


(%)

GNPA (%)


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


(%)

NNPA (%)


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




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 (%)

(%)



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 (%)

(%)



Exhibit 26: NII trend

4287

5342

6263

7827

9933

0

2000

4000

6000

8000

10000

12000

NII (| crore)

(| crore)



Exhibit 27: PAT trend

-1641

-247

712

1388

2362

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

3000

PAT (| crore)

(| crore)






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


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





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


(| crore)

Advances (| crore ) Deposit (| crore)


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)


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


(%)

NIMs (%)


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


(%)

(| crore)

GNPA (| crore) GNPA Ratio (%)


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


(%)

ROA (%) ROE (%)


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




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.




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 (%)


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


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 (%)


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




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.




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


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


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





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





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

[email protected]




ANALYST CERTIFICATION

We /I, Kajal Gandhi, CA, Vishal Narnolia, MBA and Harsh Shah, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this

research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the

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IDFC First Bank IDFBAN) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_IDFCFirstBank...(HDFC, IndusInd & Kotak Bank). IDFC First Bank’s, sustainable RoE being relatively

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