Edelweiss' research report on IDFC Bank
IDFC Bank’s (IDFC) Q2FY18 PAT of INR2.4bn came lower than estimate on lower other income (low treasury and soft core fee). After the Q1FY18 blip, asset quality was steady (GNPLs at INR20bn, flat QoQ, 3.9%). Retailisation continued with both asset and liability firming up (CASA crossed 8% mark, customer franchise rose to 1.9mn versus 1.6mn in Q1FY18, continued retailisation of funded book to 27.5% versus 26.1% in Q1FY18), but it still has a long way to go. Impending SCUF/IDFC merger is fraught with uncertainties in terms of swap ratios, execution and regulatory approvals, that could weigh on stock performance. Maintain ‘HOLD’.
Outlook
We expect slower growth and NIMs pressure (given repricing of wholesale book and PSL drag) to lead to slower revenue traction. Thus, we estimate IDFC to deliver moderate profitability — RoA/RoE of ~1.2%/<10% by FY19. Merger uncertainties are an overhang on the stock and we await details on same. Maintain ‘HOLD/SP’ with TP of INR67.For all recommendations report, click here
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