From the merger announcement Press Release extract:

Read the full release here

Merger – IDFC Ltd. and IDFC First Bank

1. Can you please provide the source please?

Here’s Guidance 2

No mention that there will be no capital raises.

2. If you quote him from the latest conference call, can you please point to when he said that? It wasn’t in the opening remarks, nor did I see it in the google generated transcript of the call.

3. If you are generating equity only at the rate of 11% but have an ambition to grow at 20 – 22%, where will the additional equity capital come from?

1. ” 1. An estimated reduction in share count from the impending merger of IDFC (from 264.64 cr to 248 cr) will make no difference to the conclusion.”
   There should be no dilution at all.
   Idfc first bank has total T shares out of which IDFC holds X and rest of the public/FII/DII hold Y
   Before merger idfc first share count Total is T = X + Y
   After merger same T = X +Y

The impact will be on the count of IDFC share, there the holding company share will cease and all shareholders will get ~ 1.55 share of idfc first.

Has anyone done a comparison of IDFC vs. Federal Bank in terms of financials (earnings growth, ROE) and Valuation (P/B). My understanding is that Federal has been consistent in reporting good beat on Earnings and appears cheap/reasonable compared to IDFC.

Also, Federal has been very aggressive recently to promote usage of credit cards through various tie-ups on large retail platforms (e.g. Lifestyle, Amazon, Swiggy). Keenly awaiting how it’s marketing effort on credit card business will deliver over coming quarters. Btw – what’s market share of credit card business for IDFC vs Federal?

Vaidyanathan seems to be giving a message to the shareholders : “The bank is doing well, It will do even better in next 5 years. For proof we give you the guidance no 2.0. Those with long term investment horizon should continue to stay. He even gave the projected estimate of PAT in 5 years at 12000 crores.”

This would translate to roughly 4 times increase in existing market capitalisation, which would make an excellent return. He also ruled out any ‘definite requirement’ of additional capital as the bank will be slowing down to 20-22% compound growth which could be supported by the recurring profits.

I think this is a very fair and transparent approach by the bank management where they have made their intentions for next 5 years very clear. We have already seen the competence of the bank management. We can also guess the performance of the Indian economy for next 5 years provided country remains politically stable and is able to avoid getting into any major armed conflict.

Disc: No investments

IDFC First’s latest quarterly results illustrate (again) that need to be cautious in analyzing earnings growth (or decline) without taking the corresponding “equity inflation” into account (post #1861 above – IDFC First Bank Limited – #1861 by diffsoft )., esp in a growing bank!

1. IDFC First’s Earnings seemed to have grown quite well in the past year

   

2. But so too has its share count, which has grown by a staggering 13.3% over the past year!
   

3. And that gives a very sobering assessment on how much every share earned. The decline in earnings growth q-o-q has doubled and just snailed ahead y-o-y, much worse than a fixed deposit investor in the same bank!!!

   

4. You may workout for yourself how the impact would be on diluted shares

Notes:

1. An estimated reduction in share count from the impending merger of IDFC (from 264.64 cr to 248 cr) will make no difference to the conclusion.

2. I just took standalone earnings because the two other entities on consolidated earnings are quite immaterial.