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Last Updated : Oct 30, 2014 05:47 PM IST | Source: CNBC-TV18

IDFC good long-term bet; fair value Rs 152: Morningstar

IDFC has registered a fall of 13 percent in its consolidated second quarter net profit at Rs 421.4 crore against Rs 486.7 crore, Y-o-Y.


Talking about IDFC's second quarter performance Suruchi Jain, Equity Research Analyst, Morningstar India said the house is keenly watching the loan growth figure after the environment for infrastructure seems to have improved.


She also expects the company to grow the loan book substantially in one year’s time when the company gets the banking license.

IDFC is a good long-term story and investors need to be patient. The fair value for the stock is around Rs 152, said Jain.


IDFC has registered a fall of 13 percent in its consolidated second quarter net profit at Rs 421.4 crore against Rs 486.7 crore, Y-o-Y.

Below is the transcript of Suruchi Jain’s interview with CNBC-TV18's Reema Tendulkar.

Q: I can only see one number on IDFC and that is a profit figure of Rs 421 crore, how bad is that number compared to your estimates?

A: The numbers are quite low compared to our estimates. We were expecting Rs 500 crore plus kind of number. The main figure that we are watching out for is the loan growth figure because that has been the main pin-point for IDFC. We would be interested in knowing how they are faring now that the infrastructure sector is doing better now and also in a year’s time once they have the banking licence they will be able to grow their loan book substantially.

Q: Net profit at  Rs 421 crore means that it is a considerable decline compared to Rs 481 core that they did in the comparable quarter of last year. We also have the total income Rs 2,486 crore versus Rs 2,148 crore. Does that give you a sense of what the Net Interest Income (NII) might be and also if you could tell us your estimates for NII while we await that number?

A: We mostly look at annual figures, so we are expecting Rs 2,900 crore on the total income side for the full year. So that is roughly a growth of about 16 percent over last year. But of course given that the bank is in transition it is possible that for 12-18 months it will be pretty slow but once they have transitioned into a bank and there is a clear strategic direction then the numbers should start flowing through.

Q: Do you have any more details with you. Gross Non Performing Asset (NPA) has come in at 0.62 percent which means it is largely similar to what they did in the previous quarter which was at 0.64 percent. At least the management when we used to speak to them post Q1 as well as in the quarter sounded a bit cautious in the asset quality. So in that sense the gross NPA has not worsened or weakened also for that matter. 0.62 percent versus 0.64 percent, so would you derive some comfort from that?

A: Yes, that definitely is a comforting factor and last year you have to note that they had one large NPA which was a specific provision and so this year definitely the numbers will be better because we don’t expect any large provisions coming through. So it will be pretty standard as it has been in prior years.

Q: Based on these numbers the profit figure, the big miss, the asset quality which is stable, what according to you will be the performance of the stock tomorrow?

A: Actually we has Rs 152 fair value on the stock and we are looking at this on a long term horizon that this is a solid company. They have managed to build a business around infrastructure despite so many headwinds and now with the banking licence their competitive edge will only get stronger over the due course of time.

So whoever has invested in IDFC has to be patient for the next year or two. In the short term there is not much that one can expect in terms of profit or growth at the point.

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First Published on Oct 30, 2014 05:47 pm
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