Buy IDFC; target of Rs 210: Motilal Oswal

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Motilal Oswal is bullish on IDFC and has recommended buy rating on the stock with a target of Rs 210 in its February 4, 2013 research report.
 
“IDFC's 3QFY13 reported PAT grew 20% YoY to INR4.6b (3% below our estimate). Adjusted for one-off trading gain of INR835m in 3QFY12, PAT growth was strong at 45% YoY.”
 
“Despite loan growth moderating to 21% YoY, 9MFY13 PAT (adjusted for NSE and MF stake sale in FY12) grew ~40% YoY. PAT growth was led by (a) stable spreads at 2.5%, (b) strong fee income growth of ~50%, and (c) sharp control over cost (flat YoY in 9MFY13) - TTM C/I ratio was 16% v/s 20% a year ago. NII for the quarter grew 2% QoQ and 22% YoY to INR6.6b (in line with our estimate). Spreads were stable both QoQ and YoY. Sanctions remained volatile and declined 44% YoY (increased 55% QoQ) to INR43.1b. Disbursements declined 56% YoY and QoQ to INR25.8b. In 9MFY13, sanctions declined 13% YoY while disbursements grew 5% YoY. Loan pipeline increased 14% QoQ to INR152b, led by 40% QoQ rise in the Telecom segment. Asset quality remained stable QoQ, with GNPA at 0.26% and PCR at ~54%.”
 
“IDFC continues to deliver healthy performance on core operations. Loan growth momentum has remained healthy over the last few quarters, led by refinancing opportunities (though moderated in 3QFY13). Moderation in wholesale rates and government's attempt to address key issues faced by Indian infrastructure sector would be major catalysts to improve growth and profitability outlook. While the stance on asset quality remains cautious, IDFC has been prudently making provisions for the same (loan loss provisions of 1.6% of assets). RoA and RoE are likely to be healthy at 2.8% and ~16%. Buy,” says Motilal Oswal research report.

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