IDFC or IDFC Bank: Which stock should you buy or sell now?

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Moneycontrol Bureau Shares of IDFC jumped 2 percent intraday on Monday as Bank of America Merill Lynch has upgraded the stock to buy with a target price of Rs 65 per share. IDFC is the holding company which owns 53 stake stake in IDFC Bank. IDFC’s share of the bank is worth (USD 1.8 billion) is 30 percent higher than its market cap (USD 1.3 billion). However, BoAML thinks there is a valuation anamoly as  the market appears to be assigning negative value to non-bank business or the market is giving a 50 percent discount to underlying constituents. According to the brokerage, the anamoly should correct. “A holding company discount of  more than 30-35 percent appears unjustified. Moreover, there is value accretion from the non-bank businesses managing total assets of USD 11.3 billion between them. The current discount (45-50 percent) suggests negative value is being assigned to non-bank businesses,” it says in a note. Meanwhile, it has also initiated coverage on IDFC Bank with a neutral rating and target price of Rs 70 per share. It believes the transition to a bank will be painful, as it expands distribution and meets regulatory requirements, hurting its profitability.

Goldman Sachs also has initiated coverage on IDFC Bank with a sell rating and a target price of Rs 57 per share. It feels that the business strategy appears mixed and is unlikely to lead to a strong retail build out in the near-to-medium term, which could have otherwise, partially offset the high regulatory cost. As a result, Goldman Sachs expects IDFC Bank to deliver below median return on assets (ROAs) by FY21 and lower headline loan growth versus other private banks.At 10:39 hrs IDFC was quoting at Rs 53.55, up Rs 0.50, or 0.94 percent while IDFC Bank was  at Rs 59.75, down Rs 1.25, or 2.05 percent on the BSE. Posted by Nasrin SultanaFollow @NasrinzStory