No brainier multibagger : IDFC

I feel that IDFC is a cherry pick now for an investor, who can wait 3-5 years. The parent company and the Bank can do wonder to a long term portfolio.

Key numbers :

MARKET CAP (RS CR) 23,550.75

P/E 13.97

BOOK VALUE (RS) 92.79

DIV (%) 26.00%

INDUSTRY P/E 6.67

EPS (TTM) 10.58

P/C 14.49

PRICE/BOOK 1.59

DIV YIELD.(%) 1.76%

FACE VALUE (RS) 10.00 (copied from Moneycontrol)

Disclaimer : I am invested in IDFC.

 

I would say stay away from IDFC. I have been tracking this since its IPO days.....over the last 5 - 7 years the stock has been in a very narrow range and it has struggled to go beyond 160. Secondly IDFC is a great employer for its top executives cannot say the same for its share holders. Even after being awarded a banking licence, the stock has struggled.

 

I guess IDFC was supposed to give share of its banking business to the shareholders of IDFC in the ratio of 1:1. Has that been done yet ? Are the shares already demerged? I agree with @jeett that atleast since last 5 years it has been in a narrow range. Actually another stock I can think of like that is Powergrid. Over the last 5 years even that stock has been in the range of around 100-150. Although a consistent dividend payer but the dividend yield is around 1.8%.

However opening a bank can be exciting for a company like IDFC as it provides a greater earning visibility and better margins than the infrastructure funding business which it is currently into. The major advantage that it might have would be that it's book would be absolutely clean and blank having no NPA's whatsoever. Some of the public sector banks are struggling with NPA's right now and IDFC can be a good option. However on the flip side, I think since it's been too late to enter the banking scene, acquiring customers might be more challenging and expensive. Although India does have a largely underbanked population, most in the cities and towns might already be having a bank account. Also with the recently concluded Direct Benefit Tranfer for Lpg as well as bank accounts for all schemes, many in rural villages might also now have a bank account(although plenty may still be inactive). I request other board members to share their view on the same.

 

Yes u r right ... MNREGA, OAP, LPG SUBSIDY and many other schemes made every person in rural areas to open bank account so its too late to start it

 

@stockjeet18 I mean it is never too late. India still has a large population and we are the youngest one too. That means every year there maybe millions who would be turning 18 and probably opening their first bank account but it would still be challenging to acquire new customers with increased competition. IDFC is one of the well known companies in the country so I believe they would put a quality management when they start a new bank.
One more thing I noticed is that along with IDFC, even Bandhan Financial was given nod to open a bank and they would actually be starting a bank much earlier. In recent media reports, it has been said that they would be opening around August. I believe Bandhan might have a slight better advantage than IDFC because they are already a micro-finance company so they have a working relation with retail customers at least in rural parts of India and there might be a level of trust and comfort with the company. This might give them an edge over IDFC. However IDFC might take on this as a challenge and honestly it would be exciting to see their progress as a bank.
I would like to know yours as well as other board members views on the same.

 

IDFC is yet to allot 1:1 banking shares. IDFC Bank will have certainly have additional levers to showcase better performance, however it will not be an easy job. Bandhan Finance on the other hand is already starting Bank in August, has a plan for 600 branches on day one, has a strong micro finance customer base and will be a better bet as and when it comes with an IPO.

Banking shares alloted to IDFC holders will only account for 47% of its total equity - this translates into a Equity base in excess of 4000 Cr for IDFC Bank and it may struggle to support high earnining growth for price in excess of IDFC's current price. Secondly IDFC is transferring a portion of its portfolio to the bank which means it may even translate NPAs as well - so not having any NPAs may not be accurate.

I would suggest that one looks out for better banking plays - e.g DCB, Yes / AXIS / Indusind.

 

@jeett Thank you for a nice analysis. I would like to ask just as IDFC might be transferring portion of portfolio to the bank and there by translating NPA's as well, would Bandhan do the same. Would it also have some NPA's in its books when starting ?
Bandhan IPO might be an attractive one when it comes but it all depends on the kind of response they might get when they open the bank.

 

Yes. Bandhan will also do the same. Please note that key differences in my view:

1. Bandhan will potentially have a relatively small Equity base as compared with IDFC.
2. Bandhan is a micro finance company with deep rural roots and will leverage its existing reach and customer base to its benefit whereas IDFC is more of a Infrastructure play and may take time to expan in the rural regions. IDFC will have still competition from strong players like ICICI, AXIS, Yes and Indusind bank.
3. I will wail for a minimum of 2 years before invest in IDFC Bank - it needs to demonstrate that it will be another ICICI or Yes or AXIS and not IDBI.

 

@jeett Do you know after starting their banking services how long would it take for an ipo of bandhan. I do know that rbi has guided that all banks must be listed on the stock exchanges but I am not sure is there any particular timeline that they need to follow for the same

 

I am not sure on RBI timelines, but i have read that Bandhan has plans for IPO in the next 18 months.

 

Why risk in investing in a bank that has not in operation yet, when there are other well established banks running very well, just my thought any comments?

 

Well one reason could be that the newer banks would have clean books and relatively clean NPA's which most of the current banks (atleast the public sector banks) are struggling with.

 

Any view on IDFC & IDFCBANK?

 

Banks are out of fashion it looks like. Now everyone wants chemical stocks. Even Realty stocks are good now because of undervaluation. In Banks there is too much competition and also RBI is giving license on tap. NBFC in microfinance also look better than Bank stocks.

 

In the mean time, my Yes Bank shares gave YTD return of 55.19% and its 10 year CAGR is 30%.
Source - Valueresearch https://www.valueresearchonline.com/stocks/snapshot.asp?code=15907
Where Infosys gave a 10 yr return of 11% only. (same source)

Bhalo thakben bhai.....

Regards.

 

I am also surprised how SBI and Yes bank gave about 50% returns in short span. Is it still time to enter for long term or I missed rally?

 

I see no logic to agree with the viewpoint that IDFC is likely to reward its shareholders in any meaningful way.