IDFC First Bank- Q4FY21 Result Analysis | Yadnya Investment Academy

IDFC First Bank announced its Q4FY21 results on Saturday 8^th May 2021. In this quarter, Bank not only presented the business figures and the performances but guidelines of the bank for the coming years. So, particularly in this blog we will discussing the quarterly performance of the bank in the last quarter of FY21 and will know which guidelines have been laid by the bank.

Introduction:

IDFC First Bank released its Quarterly Results for the quarter ended 31^st March 2021. Here are a few key highlights of the Quarterly Result of the bank.

Q4FY21 Results:

• Net Interest Income of the bank grew by 15% YoY from Rs. 1,700 Cr. in Q4FY20 to Rs. 1,960 Cr. in Q4FY21. Sequentially, it went by 4%.
• Net Interest Margin of the bank also gone up from 4.61% in Q4FY20 and 5.04% in Q3FY21 to 5.09% in Q4FY21.
• Total Income of the Bank grew by 14% YoY from Rs. 2,451 Cr. in Q4FY20 to Rs. 2,801 Cr. in the quarter ended 31^st March 2021.
• While Interest Expenditure went down from Rs. 2,207 Cr. in Q4FY21 to Rs. 2031 Cr. in Q4FY21.
• CASA Deposits also grew by a significant 122% YoY from Rs. 20,661 Cr. in Q4FY20 to Rs. 45,846 Cr. in Q4FY21.
• Likely, CASA Ratio also improved to 51.75% in Q4FY21 from 31.87% and 48.31% in Q4FY20 and Q3FY21 respectively.
• Customer Deposits as a percentage of the overall deposits & borrowings improved to 61.52% as of March 31, 2021, as compared to 47.22% as of March 31, 2020.
• Retail Loan Book, increased to Rs. 73,673 crore as of March 31, 2021, compared to Rs. 57,310 crore as of March 31, 2020. The year-on-year growth of the Retail Loan Book was 26%.
• Wholesale Loan Book reduced by 14% from Rs. 41,739 crore as of March 31, 2020, to Rs. 36,017 crore as of March 31, 2021.
• The bank reduced concentration risk by reducing the exposure to Top 10 borrowers as % of the total funded assets to 5.9% as of March 31, 2021, as compared to 7.2% as on March 31, 2020, and as compared to 9.8% as of March 31, 2019.
• The Profit after Tax for Q4 FY21 was at Rs. 128 crore, recording a growth of 79% as compared to Rs. 72 crore in Q4 FY20. The Profit after Tax for the year ended March 31, 2021, is reported at Rs. 452 crore.

Guidance of the Bank:

At the time of the merger of IDFC Bank and Capital First in December 2018, certain guidance was set by the merged bank for the future, whose progress and key metrics have been presented by the bank in Q4FY21 Results, that is:

A) Capital:

i) At the time of the Merger of both parties, the CET-1 ratio was 16.14% and Capital Adequacy Ratio was 16.51% and in Q4FY21 the same is at 15.62% and 16.32% respectively much above the requirement as per RBI regulations.

ii) IDFC First Bank also raised Rs. 3,000 Cr. from Fresh Equity Capital in April 2021 which assured standard capital is with the bank.

B) Liabilities:

iii) The most important thing to look at in the bank is the CASA Deposits. It was Rs. 5,274 Cr. in December 2018, which has consistently increased to Rs. 7,893 Cr. in FY19, Rs. 20,661 Cr. in FY20, and Rs. 45,896 Cr. in FY21.

iv) CASA as a % of deposits is at 51.75% in March 2021 which has grown significantly from 8.68% in December 2018 to 11.40% in March 2019, and 31.87% in March 2020.

v) At the time of the merger, Company had set an objective of taking the Average CASA Ratio to 30% by FY24 and thereafter 50%. But Company has achieved this target much before the desired time. The Average CASA Ratio in March 2021 stood at 50.23%. This achievement is a quite positive sign for the bank.

vi) For the same reason, that this target has been achieved, Company has also brought down from 7% to 5%.

vii) In terms of branches, IDFC First Bank has set a target of setting up 800-900 branches by FY24, and currently it is at 566 branches, very close to the target.

viii) Bank has also achieved the target of reaching 80% Customer Deposits <= 5 Crore (as a % of Customer Deposits) before time. It was 31% in December 2018, which has crossed the mark of 80% and is at 82% in March 2021.

ix) Bank has also reduced the dependency on Top-20 customers over time. The Concentration of Top-20 Depositors in the bank was 40% at the time of the merger, then it went down to 35% in March 2019, 20% on March 20, and in March 2021 it stood at 8%. Bank has set the target to take this figure to around 5% by FY21. And while looking at the consistent fall in this concentration, Bank may achieve this target very soon.

x) Another Big Positive for the Bank is the consistent downfall in Certificate of Deposits. It has come down to Rs. 5,964 Cr. in March 2021 from Rs. 22,312 Cr. in December 2018.

C) Assets:

i) As of March 2021, Bank has Retail Funded Assets i.e., Retail Loans of Rs.. 73,672 Cr. which was just half of the current Retail Assets i.e., Rs. 36,236 Cr. at the time of the merger. The company has set the target of Rs. 1 lakh Cr. for the same by FY24-FY25.

ii) For Retail as a % of Total Funded Assets, Bank has set the target to take this figure to 70% by FY24-FY25. Currently, it is at 63% as of March 2021. In 3 years, it has increased from 35% to 63%.

iii) Bank has reduced the weightage of Wholesale Funded Assets in its book from Rs. 56,809 Cr. in December 2018 to Rs. 33,920 Cr. in March 2021 and hence has shown degrowth in Wholesale Funded Assets and also achieved the target of keeping it below Rs. 40,000 which was set to be accomplished by FY24-FY25.

iv) Of these Wholesale Funded Assets, Infrastructure Loans amounts to Rs. 22,710 Cr. in December 2018, which has gone down to Rs. 10,808 Cr. in March 2021. Bank plans to take it to zero levels in the coming 5 years.

v) Top 10 borrowers as a % of Total Funded Assets has also consistently gone down by 12.8% in December 2018 to 9.8% in March 2019, and 5.9% in March 2021 and is pretty close to achieving the set target of keeping it below 5% by FY24-FY25.

vi) Legacy Loans of the IDFC Bank are the major concerns for the shareholders. Gross NPA has gradually increased over time from 1.97% in December 2018 to 4.15% in March 2021. The company has planned to maintain the Gross NPA between 2%-2.5%.

vii) While, the Net NPA of the Bank is currently at 1.86% and the bank plans to take it to the levels of 1%-1.2% by FY24-FY25.

viii) Provision Coverage Ratio of the Bank stands at 55% as of March 2021, which has continuously increased over the period. Bank has set a target of maintaining these at 70%.

D) Earnings:

i) IDFC First Bank is having a Net Interest Margin of 4.98% as of March 2021. Further, Bank had set the target of keeping the Net Interest Margins at the range of 5%-5.5% by FY24-FY25.

ii) Cost to Income Ratio without Trading Gains is at 78.79% as of March 2021. This particular parameter has not shown significant improvement as per the desired target of taking down the same to 55% by FY24-FY25.

iii) Return on Assets has also improved well for the bank in the last 3 years from the negative region to the positive territory of 0.29% in March 2021. Further, Bank plans to take this ratio to the levels of 1.4%-1.6% in the coming 3-4 fiscal years. ROA is extremely affected as of now due to lack of profitability.

iv) Similarly, Return on Equity needs to be improved and should hover between 13% to 15% as per the guidance provided by the Bank. The current ROE of the bank is just 2.73%.

v) Quarterly Average Liquidity Coverage Ratio of the Bank is at 153% as of March 2021. This ratio is quite well above the required as per RBI regulations of 100%. This shows that Bank can manage short-term liquidity requirements.

Conclusion:

IDFC First Bank has posted a decent quarterly result for Q4FY21 in a very fair and transparent manner. Bank has set up certain targets to be achieved by FY24-FY25. In many of the cases, Bank has already achieved the target before time with ease, and in certain parameters, Bank will soon achieve its desired result. The only critical concern for the bank is the problem of Loans and hence the possibility of heavy NPAs in the bank. Hence, IDFC First Bank is truly an aggressive call for the investors. One should truly believe the vision of Mr. V. Vaidyanathan if he/she is invested in this stock.