IDFC First Bank Limited

I respectfully disagree with you. Using past performance from a specific point in history to prove or disprove a hypothesis can be misleading, especially if the outcomes change when you shift the time frame by six to twelve months. For instance, starting the return calculation from January 2018 may show different results. If you calculate returns until mid-2023, when the stock was at Rs 100, you might see an even stronger case. However, I don’t think this approach proves anything. There are numerous reasons why the results turned out as they did, and I don’t want to delve into why the Bank Nifty and IDFC First Bank returns were as they were.

It’s worth noting that Rana Kapoor raised capital from the same analyst group at three times the book value, and DHFL and India Bulls raised capital at more than twice the book value. In my view, these facts don’t prove anything either. The same analyst group once praised Chanda Kochhar.

What I’m advocating for is a first-principles approach: estimating future cash flows and applying a margin of safety to arrive at a value. In this case, the management has provided a performance update for the next three years, so we don’t need to speculate further. This is the only way I know to value a business at a given moment.

P.S. I want to point out an instance where Vaidyanathan’s statements didn’t align with reality. If you recall, in FY23, he mentioned in several conference calls that the incremental new business was generating a 16-18% ROE, which explained why operating profit was rising faster than loan growth. He reiterated this point multiple times. If the business grows at 25%, most of the book will be new by FY27. If, by the end of FY27, the company cannot achieve the projected 16-18% ROE, I will definitely start to question other statements he has made.