Hi, i think few tweeks are needed here.
First – Can you please calculate Tier 1 capital ratio every year – and historically if it has gone down below 13%, IDFC raises further equity. So you cant afford to have lower than 13% tier 1 capital and have to raise funds when it goes down
Second – the ramp down of C2I is too aggressive – management guidance says 65% on a long term basis based on past 2 years of concalls. Any thing below 65% is unachievable.
Third – cost of deposits – why are cost of deposits falling down? Do you think IDFC can afford to decrease interest rates and can still garner the deposits which you have projected?
Just these 3 changes will kill down ROE third year onwards
Since as an investor, we get too biased with our assumptions, its better to take realistic scenario and worst case scenario.
The above three points are realistic scenario.
Worst case is – c2i remaind elevated at 70%, gNPA at 2%, NNPA at 1% ramping down to 0.75%. Fund raising at max 1x BV. Deposit growth doesnt catches up and borrowing starts increasing.
Then probably you will see its not a re-rating candidate actually.
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