Expecting a dividend from IDFC first for next 3-4 years will actually be hurting ourselves. Since dividend comes straight from Teir 1 capital, if we look at June numbers carefully, despite raising equity from IDFC ltd, their teir 1 has fallen substantially (this is primarily because of weights being re-assigned in first quarter every year to risky assets). a dividend distribution policy will not only accelerate the equity dilution in IDFC first but will also be detrimental to shareholder wealth creation.
in my opinion, major pain points in IDFC first is Cost to income ratio – which even if 65% is achieved (since the target of FY 25 has been increased from 55% to 65%), the bank will continue to raise the funds from market and hence it might end up with largest equity base bank in some years where bank will continue to make money, while shareholders wont be able to make much of it.
I feel the P/B of 2.2 is very richly priced with whatever current metrics we are operating on in IDFC first.
Please dont count me as nay sayer. I am just pointing the facts.
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