IDFC First Bank 6 Point Analysis

In this blog, we will be doing a detailed analysis of the Q1FY22 result of IDFC First Bank. So let’s get started.

Introduction:

IDFC First Bank reported a net loss of Rs.630 Cr in Q1 FY22 from a net profit of Rs.94 Cr in Q1 FY21 last year. The loss incurred is mainly due to heavy provisioning (Rs.1,879 Cr) for cushioning the impact of the second wave of the Covid-19 pandemic. On the Operating front, the bank reported strong operating performance in terms of growth in Net Interest Income, Operating Profit, and expansion in NIM. Though stressed asset pool and NPAs remained a key concern for the bank. Here is a 6 point analysis of IDFC First Bank based on Q1 FY22 results.

IDFC First Bank- 6 Point Analysis

1) Q1FY22 Result:

• The Interest Income of the company has increased yearly by 4% YoY from Rs. 3,949 Cr. in Q1FY21 to Rs. 4,089 Cr. in Q1FY22. While Quarter on Quarter, the revenue has increased by 2% from Rs. 3,993 Cr. in Q4FY21.
• The Interest Expenses had decreased significantly by 14% YoY and 6% QoQ from Rs. 2,205 Cr. and Rs. 2,033 Cr. in Q1FY21 and Q4FY21 respectively to Rs. 1,905 Cr. in Q1FY22.
• The Net Interest Income for the Bank stood at Rs. 2,185 Cr. in Q1FY22 against Rs. 1,744 Cr. in Q1FY21, up by 25% YoY and the same has increased by 11% QoQ from Rs. 1,960 Cr. in Q4FY21.
• The Fees and Other Income of the bank have been boosted significantly by 203% YoY from Rs. 148 Cr. in Q1FY21 to Rs. 449 Cr. in Q1FY22.
• The Operating Income of the bank has increased from Rs. 1,892 Cr. in the quarter ended 30^th June 2020 to Rs. 2,634 Cr. in the quarter ended 30^th June 2021, amounting to growth of 39% YoY. Sequentially, the Operating Income of the bank has increased by just 3% from Rs. 2,561 Cr. in Q4FY21.
• The Pre-Provisioning Operating Profit (PPOP) of the company has increased impressively by 12% YoY and 55% QoQ to Rs. 1,001 Cr. in the quarter ended 30^th June 2021.
• The company had done provisioning of Rs. 1,879 Cr. in the first quarter of FY22 which is 146% higher than the provision by the bank in the same quarter of previous years, likely 212% more provisions than the previous quarter.
• The Bank has made additional COVID provisions of Rs. 350 Cr. in Q1FY22 and a significant rise in provisioning against the potential impact of Covid-19
• The Bank has reported a loss of Rs. 630 Cr. in the quarter ended 30^th June 2021 due to high provisioning.

IDFC First Bank- Q1FY22 Results

2) Balance Sheet Summary:

i) Deposits:

• The Balance Sheet Size of the Bank has grown by 12% YoY from Rs. 1,50,641 Cr. in the Q1FY21 to Rs. 1,68,986 Cr. in the Q1FY22. Sequentially, this size has expanded by 4% from Rs. 1,63,144 Cr. in Q4FY21.
• Total Deposits of the Bank is at Rs. 91,312 Cr. in Q1FY22 up by 31% YoY and 3% QoQ.
• CASA + Term Deposits on the Retail Side of the bank has expanded by 60% YoY from Rs. 39,872 Cr. in Q1FY21 to Rs. 63,894 Cr. in Q1FY22. On a sequential basis, there is no change.
• The only CASA Deposits of the company have grown by 2 times from Rs. 23,491 Cr. in Q1FY21 to Rs. 46,439 Cr. in Q1FY22. Quarter on Quarter, growth in this factor has remained flattish at 1.2%.
• The Wholesale Deposits (including CD) of the bank stand at Rs. 24,795 Cr. in Q1FY22 down by 17% YoY and remained muted QoQ.
• The Bank seems to be reducing its Dependency on Top depositors. AS the Top-20 Depositors as a % of Total Customer Deposits has come down from 16.86% in Q1FY21 and 7.75% in Q4FY21 to 9.39% in Q1FY22.
• The Borrowings of the Bank has also reduced by 8% YoY from Rs. 52,397 Cr. in Q1FY21 to Rs. 48,430 Cr. in Q1FY22.
• Improving Liability Mix Driven by strong growth in CASA deposit.

IDFC First Bank- Balance Sheet Summary: Deposits

ii) Advances:

• The Total Funded Assets of the Banks are at Rs. 1,13,794 Cr. in Q1FY22 against Rs. 1,04,050 Cr. in Q1FY21 up by 9% YoY and down by 3% QoQ from Rs. 1,17,127 Cr. in Q4FY21.
• The retail assets seem to be increasing very well. It has increased by 30% YoY from Rs. 56,043 Cr. in Q1FY21 to Rs. 72,766 Cr. in Q1FY22. But sequentially, this number has gone down by 1% from Rs. 73,672 Cr. in Q4FY21.
• The Wholesale assets of the bank have witnessed a drop of 15% YoY and 5% QoQ to Rs. 32,148 Cr. in Q1FY22.

IDFC First Bank- Balance Sheet Summary: Advances

iii) Advance Mix:

• At the time of the merger of IDFC Bank and Capital First, i.e., on December 2018, at the Loan Book of Rs. 1.10 Lakh Cr. it comprises 65% as wholesale book and 35% as Retail Book.
• But, now over time and post-merger, the situation has reversed and currently the retail book consists of 64% of the total loan book and the Wholesale book only accounts for 36% as of June 2021, being the size of Loan Book remain somewhat same.

IDFC First Bank- Balance Sheet Summary: Advance Mix

iv) Retail Advance Mix:

• If we go in-depth and bifurcate the Retail Funded Assets of the Bank, we can witness the following picture:

IDFC First Bank- Balance Sheet Summary: Retail Advance Mix

3) Advances Mix:

• As presented in the above picture, the retail funded assets of the bank are greatly diversified wherein the bank has reported growth in almost all the key factors which can be seen in the image attached below:

IDFC First Bank- Advance Mix

4) Key Ratios:

• The Net Interest Margin of the Bank is consistently rising from 4.61% in March 2020 to 5.09% in March 2021, and 5.51% in June 2021.
• The Cost to Income Ratio of the bank is at 77.2% as of June 2021 which is decreasing from the last 2 quarters. This may be due to the aggressiveness of the bank.
• The CASE Ratio of the bank has improved sequentially over the past quarters and it currently stands at 50.9% as of June 2021 which also met the target of Bank of touching the CASA Ratio mark of 50% by FY24.
• Due to loss, the Return on Average Assets of the bank is on the negative side at -1.52% on an annualized basis.

IDFC First Bank- Key Ratios

Capital & Liquidity Positioning:

• The Current Capital Adequacy Ratio of the Bank is at 16.56% as of 30^th June 2021, which was 13.77% in March 2021.
• The Capital Adequacy Ratio of the Bank has increased due to the raising of Equity Capital worth Rs. 3,000 Cr. through QIP during Q1FY22.
• The Liquidity Coverage Ratio of the bank is at a very strong position at 166% well above the RBI requirement of 100%.

IDFC First Bank- Key Ratios: Capital & Liquidity Positioning

Franchise:

• The Bank has a total distribution network of 601 branches as of 30^th June 2021.
• The company eyes for having 900 branches by FY24 and after looking at the progress in the branches establishes in the past period, it seems that bank can achieve this target on time.

IDFC First Bank- Franchise

5) Asset Quality:

• Provision Coverage Ratio declined drastically as Proforma NPA reflected in the accounts in Dec-20 quarter
• Rise in NPA QoQ on the back of Slippage of Rs.854 Cr of one Infra Loan (Mumbai Toll Road Account) due to the impact on toll collections following COVID-19 2^nd wave
• The Gross NPA and Net NPA of the bank have increased and are at 4.61% and 2.32% respectively.

IDFC First Bank- Asset Quality

6) Valuation:

• TTM EPS is Negative, due to a loss of Rs.630 Cr incurred in Q1 FY22
• IDFC First Bank is not getting Premium Valuation by the market like HDFC, ICICI & Kotak Banks mainly on account of comparatively lower Institutional Holding due to the bank’s Stressed Asset Pool & NPA concerns.

• (FII+DII) Holding as a % of Free Float
• IDFC First Bank : 49.2%
• HDFC Bank : 82%
• Kotak Bank: 77.5%
• ICICI Bank: 90%

• IDFC First Bank is currently undergoing the Brand Building process & tapping various Business Opportunities in Banking & Financial Services.
• Thus, IDFC First Bank might turn out to be a dark horse-driven the Visionary leadership of Mr. V. Vaidyanathan & the achievement of various Guidance given by the Management at the time of Merger. (Guidance regarding:

• CASA % > 50%, Capital Adequacy Ratio > 13%
• Branches > 800-900
• Certificate of Deposits < 10% of Liability Mix
• Average LCR > 110%

IDFC First Bank- Valuations

Conclusion:

The rising issue of Vodafone-Idea and the fall of the stock price of Vi Stock may also have a cascading impact on the IDFC First Bank as well. The high provision by the bank and the possibility of rising NPAs of the bank has resulted in the profitability of the bank and the bank has resulted in a loss in the Q1FY22. Investors should carefully the performance of the bank in upcoming investors as well. Do follow due diligence before making an investment decision.