IDFC Bank from IDFC, valuation and future earnings.

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by Fun_Da_Mentalist, Sep 20, 2015.

  1. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    Has someone done an analysis of what will be the price of IDFC bank one year or two years on from the share being issued 1:1 for IDFC? Price / book one would get for IDFC bank would be less than around 1.2. HDFC bank trades around 4 times book. Even if IDFC bank takes three to five years to achieve that, seems to be a good long term bet. Would request counter views or other analysis on this
     
  2. kharb

    kharb Well-Known Member

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    I had already mentioned IDFC as fastest would be 10x baggers as my top pick among large cap in ,What will be next 10x or 100x multibaggers ?.IDFC bank balance sheet will be size of Yes Bank on first day iteslf on 1st October. Balance sheet has been cleaned by IDFC by every possible provisioning so that IDFC bank may be most clean bank.
     
  3. Meenakshi Razdan

    Meenakshi Razdan Administrator Staff Member Moderator

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    There is a report by PL which values IDFC Bank at 1.6x FY17E ABV. The report states "The bank will be starting operations with a net worth of Rs135bn (after making incremental provisions of Rs25bn) and a total share capital of ~Rs34bn which implies a book value of ~Rs40 for IDFC Bank and Tier‐I of ~16%."

    ....

    Exhibit 2: IDFC’s transition to a bank: Fresh share issuance and networth

    IDFC transition to a bank
    Existing Number of shares of IDFC 1,593
    No. of shares to be issued for IDFC Bank in 1:1 ratio, representing 47% of total equity 1,593
    Total number of shares of the bank 3,389
    No. of shares to be held by NOFHC 1,796
    Total share capital of IDFC Bank (Rs m) 33,889
    Total networth of IDFC Bank at start (Rs m) 135,000

    Exhibit 3: IDFC Bank book value post incremental provision of Rs25bn

    Networth allocation post incremental provision of Rs25bn Rs m
    Current networth of IDFC 173,209
    Incremental provisions to be made 25,000
    Impact on networth, adjusting for DTA creation 156,543
    Networth allocation of above:
    ‐ To IDFC, Subs and NOFHC 21,543
    ‐ To IDFC Bank 135,000
    Current Book value of IDFC Bank, Rs 40"


    The report recommends a buy for a target price of Rs. 160.

    There is also a report by Motilal Oswal of April 2015 which conducts a similar analysis.
     

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  4. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    Thank you. Will read them with great interest.
     
  5. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    I understand that the BV of IDFC is around 106. I also understand that post demerger the BV of IDFC will be around INR 63.72 and that of IDFC B will be 43.28. IDFC trades at about 1.2 X Book. a P/B of 2 is being attributed as a conservative no for private banks, which means, post listing IDFC B would be around INR 86 and IDFC will trade at INR 76.40. If one is holding IDFC, his holding value ( IDFC + IDFC B ) would go up from todays INR 136 to INR. 162.4 which is a trade with a 19% upside on a conservative basis.

    Of course, then there is the long term value of IDFC Bank which is appreciable. Long story short - Even from a trading perspective this is one trade with a decent upside.
     
  6. Sanjay Kumar

    Sanjay Kumar New Member

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    today the demerger happened, the price was 140, hence it became 70.
    But that also fell to 60 rs now.
    Does it make sense to buy the holding company shares now?
    Can any body share your thoughts
     
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  7. SUNNY

    SUNNY Member

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    It depends on the following;
    How much will be your holding duration
    How much you are expecting the profit on this investment
    How much you can suffer the loss
     
  8. Sachin pathak

    Sachin pathak Active Member

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    Somebody mentioned this likely to be 10x or100x multibagger. So what does this translate into in terms of the share price?

    Can somebody educate me for i have never tracked IDFC and its banking company setup
     
  9. SUNNY

    SUNNY Member

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    it can be or cannot be, no one knows it. There is no specific method in stock market to find a multi bagger.
     
  10. Sachin pathak

    Sachin pathak Active Member

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    What i meant was if its a 10x - what would be the price then. I just want to know wht is idfc bank listed at.
     
  11. kharb

    kharb Well-Known Member

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    I think IDFC bank is worth investing in large cap , slowly but surely in scatered way on bad days for long term ride.Patience may be rewarded in long term.Take your own decision as this is not recommendation but only view.
     
  12. Sachin pathak

    Sachin pathak Active Member

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    Can you kindly tell me whats its price now. I have never tracked IDFC and its scheme to setup and list the bank
     
  13. Sachin pathak

    Sachin pathak Active Member

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    Honestly i would adopt an inital wait and watch approach on this new bank setup. A bank is a very different and difficult animal to deal with than IDFC in its earlier avtaar (development bank).

    I presume that its largely going to be a Wholesale bank - so cutthroat competition with wafer thin pricing. Also Banks generally have a very long gestation period - in the last decade Stalwarts like Ashok Kapur/Rana Kapoor/Harkirit Singh (initial yes bank promoters) or a Romesh Sobti ( with is handpicked dedicated management team) took 5-6 years to bring yes bank and indusind bank up from scratch....

    Interested in knowing the composition of IDFC Management team. There arent many like the ashok Kapur or Rana or Romesh in the banking sphere currently.....Each i had the opportunity to work with in my banking career.
     
  14. Sachin pathak

    Sachin pathak Active Member

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    This is not to take away anything from IDFC Bank...... But i simply prefer a known devil to an unknown angel...
     
  15. kharb

    kharb Well-Known Member

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    Mr Rajiv Lal of IDFC bank is graduate from Oxford,PhD from Coulambia university in Economics.He has worked with Asian devolpment bank,World bank,warburgpicnus and Morgan Stanley before heading IDFC. I hope now you have some knowledge of management of IDFC bank.He was also Prof. in Foland Atalantic university earlier.So he is Second to none in Indian banking system and considered to be a smart and competent guy in banking world.I wish him all success and I would like to bet on him as a share holder of IDFC BANK .Bank is expected profit of 1000 Crore in first year.It wil be most high tech bank India has and its cost of operation is targeted 30% lower than best in Indian Banks.But it is only a long term story of 5 years or more.
     
    Last edited: Oct 1, 2015
  16. Sachin pathak

    Sachin pathak Active Member

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    We will see...... Time will soon tell.

    IDFC has a huge headwind of being a late entrant and the only thing of interest to me will be what value add is built over the existing base ( which it has just simply inherited)

    As i said time will soon tell and wish it well. And for now will stick to already established banks
     
  17. kharb

    kharb Well-Known Member

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    They will start with large corporate portfolio which is always risky than housing finance and retail.Now being bank they will have access to cheap CASA funds and increase in housing and retail portfolio.So with flow of cheap funds and entry into high margin and safe retail and housing portfolio,they would be benefited emensly. Also they have minimum FII stake at 24% ,so large money will flow into stock.Many of existing Banks don't have window as FII stake is already at permissible limit.
     
    Last edited: Oct 2, 2015
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  18. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    IDFC bank is for the patient investor. It has all the elements to be an iconic wealth creator story. The management is world class. They know how to build an institution. Their competence and ethics are strong. It sits at a happy intersection of strong revenue pool and strong competences to leverage that. It is well capitalised; which going forward in the banking industry will be a key aspect. Yes, there are stressed assets , but well provisioned for. All this, and a couple of other factors, gives them a great launch base. Now they need to execute. My hunch is they will execute and execute well. IDFC bank is a good opportunity. Other private banks ( notably Axis ) also offer a good opportunity.
     
  19. Sachin pathak

    Sachin pathak Active Member

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    Kharb,

    Access to CASA.....thats the toughest part and IDFC will not have this with its wholesale banking model sans transactional banking and wholesale deposits in any form are not cheap to comeby. Companies arent fools to keep their money idlying in CASA..... YES bank still has to offer 7% on its savings deposits my friend.

    As has been pointed out this is for a patient investor (5-7 play at the least). In the meanwhile the markets will not ascribe any premium to a bank just chugging along like the rest of the industry. For multibagger it will have to outperform considerably the pack and this wont be easy.

    For me its a name on the watchlist at the moment with moneies safetly tucked into already fasttracked banks like indusind and yes.
     
  20. Fun_Da_Mentalist

    Fun_Da_Mentalist Active Member

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    My guess is markets will ascribe a premium to IDFC bank. But again, it is just a guess. I might be careful with Yes Bank. Growing fast, yes; but some news flows from there are not very reassuring.
     
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