IGI Logo

Economic recovery to drive business growth

IDFC First Bank, founded by the merger of erstwhile IDFC Bank and erstwhile Capital First on December 18, 2018. At present, the bank’s total number of branches stands at 599, with a total funded assets to the tune of around ~Rs.1,17,270cr.  Net Interest Income (NII) reported a growth of 27.4% on a YoY basis, and reported Net Interest Margin (NIM) improved to 5.76% in Q2FY22, compared to 5.51% in Q1FY22.

* Bank is shifting its business from wholesale and infrastructure loan to retail lending and has been successful so far. As a result infra mix has been reduced to 8.6% from 11.7% a year ago.

* Asset quality improved however slippages remained elevated. GNPA/NNPA stood at 4.27%/2.09% compared to 4.61%/2.32% during previous quarter. Provision Coverage Ratio (PCR) improved to 52.1%.

* Collection efficiency reached pre-covid levels during the quarter.

* We value the bank at 1.9x Adj BVPS of FY23E and upgrade our rating to Accumulate with a target price of Rs.58.

Net Interest Income growth aided by margin expansion

In Q2FY22 Net Interest Income (NII) reported strong growth of 27.4% on a YoY basis and 4.0% sequentially aided by the expansion of margin. Interest income grew by 4.5%YoY while remained flat QoQ and interest expense reduced by 14.6%YoY and 4.0% sequentially. Reported Net Interest Margin improved 85bps YoY and 25bps QoQ to 5.76% due to a decline in cost of funds. Cost of funds are expected to decline further in upcoming quarters as high cost legacy borrowings are to be substituted with low cost deposits after its maturity. Pre-provision profit doubled on YoY basis however showed a decline of 30.8% on sequential basis as operating expenses increased by 16.1%. Provision for the quarter stood at Rs..475cr against 1878.6cr in the previous quarter and resultantly PAT grew 49.6% YoY to Rs.151.7cr

Improvement in key business figures

Gross Funded Asset of the bank increased 10% YoY to Rs.1,17,270cr during the quarter. Retail loan book grew 30% YoY to Rs.78,048cr which includes Rs.1,555cr disbursement through ECGL scheme. Bank is expecting retail advances to continue its strong grow in the coming quarters. Bank has also been successful in reducing the wholesale loan by 15% while infra loan book reduced by 19% and infra financing as a % of total funded loan reduced to 8.6% from 11.7% a year ago. Customer deposit increased 21% to Rs.83,889cr with CASA ratio at 50.9%.

Improvement in asset quality

During the quarter asset quality improved across all segments. GNPA for the quarter stood at 4.27% against Q4FY21 GNPA of 4.61% while NNPA stood at 2.09% against 2.32%. Retail GNPA stands at 3.45% against 3.86 during previous quarter. Provision coverage ratio stands at 52.1% which still remain as a concern for the bank. Slippages still remaining high is another concern for the bank in the near future. Collection efficiency reached pre-covid levels with urban retail segment at 99.4% and rural retail segment at 98.9% during September 2021. Total restructured book increased to 2.9% compared to 2.0% during previous quarter.

Outlook & Valuation

Bank has shown improvement in key business figures including margins and lending mix which is positive for the long term. Management is also confident on business growth as economic activities started picking momentum. Improvement in asset quality is visible along with better collection efficiency. Management expects to bring down GNPA to 2% and NNPA to 1%. However, low PCR and high slippages remains a concern in near term. We therefore assign an Accumulate rating on the stock with a target price of Rs.58 based on 1.9x FY23 Adj BVPS.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Above views are of the author and not of the website kindly read disclaimer