Buy IDFC; target of Rs 187: Motilal Oswal

Motilal Oswal is bullish on IDFC and has recommended buy rating on the stock with a target of Rs 187 in its October 29, 2012 research report.

“IDFC's 2QFY13 reported PAT grew 25% QoQ to INR4.76b (19% above est), led by lower-than-expected provisioning expenses and higher-than-expected fee income. Asset quality remained stable QoQ.  NII grew 4% QoQ and 31% YoY to INR6.6b (in line with est) driven by healthy loan growth (+6% QoQ and +36% YoY) and ~7-8bp sequential improvement in spreads. Spreads (on a 12-month rolling basis) improved to 2.58% v/s 2.52% in 1QFY13 on the back of improvement in loan spreads.  Fee income stood at INR1.44b (26% above est) led by higher-than-expected investment banking income (INR190m v/s INR30m in 1QFY13) and loan related and other fees. Gains from principal investments increased sharply to INR490m v/s INR20m in 1QFY13.”

“Borrowings during the quarter grew by 7% QoQ and 36% YoY to INR537b, in line with the asset growth. However, borrowings in the form of bonds/debentures (up 47% YoY and 12% QoQ) and short term loans (up 133% YoY and 15% QoQ) grew at a much faster pace than the overall borrowing mix. Hence, the share of bonds/debentures increased to 69% from 66% in 1QFY13 and 63% in 2QFY12 and that of short term loans increased sharply to 17% from 16% in 1QFY13 and 10% in 2QFY12.”

“IDFC has delivered strong performance on both growth and margin front. Expected monetary easing and reformatory steps by the government would be major catalysts in further improving the growth and profitability outlook. Healthy asset quality and prudent provisioning policy makes the company better-placed than peers. The stock trades at AP/ABV of 1.7x FY13E ABV and 1.5x FY14E ABV. Maintain buy with a target price of INR187 (based on FY14E SOTP),” says Motilal Oswal research report.

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