"IDFC's 4QFY13 loan growth was modest (15.7 percent yoy, 4.5 qoq), with approvals and disbursements falling 24 percent and 22 percent respectively. Exposure to the energy and transportation sectors slipped to 65.1 percent (66.1 percent in 4QFY12). Spreads were stable qoq at 2.5 percent, resulting in NII rising 9.9 percent yoy (-2 percent qoq). We expect NII to grow 22.1 percent in FY14 and 26 percent in FY15, led by the sturdy loan pipeline and IDFC's ability to manage spreads efficiently.
Non-interest income vaulted 178 percent yoy (106 percent qoq) on account of higher loan-related fees (65.5 percent yoy, 23.1 percent qoq) and a sharp rise in Treasury income (714 percent yoy, 90 percent qoq). Asset-management fees were sturdy (52.5 percent yoy, 3.4 percent qoq), with sharp growths in investment banking (26x qoq) and institutional broking (40 percent yoy, 100 percent qoq). IDFC has been able to keep operating costs in check, with costto- income falling 553bps yoy (55bps qoq) to 16 percent.
Asset quality is healthy, with gross NPA falling 40.3 percent qoq to Rs 851m (0.15 percent) of loans. We expect IDFC's conservative underwriting standards and prudent provisioning policy to keep credit costs stable, at ~40bps over FY14-15. With capital adequacy of 22.1 percent (tier-1: 19.8 percent), it is adequately capitalized for growth opportunities in infrastructure finance.
With its strong domain expertise and unique position, we believe IDFC is poised to capitalize on opportunities in infra funding, and sustain a 2.7 percent RoA over FY14-15. Hence, we retain our Buy. Our sum-of-parts valuation gives us a fair value of Rs 198; we value the lending business at Rs 173 a share (1.8x FY14e BV) and other businesses and investments at Rs 25. Risks: Substantial slowdown in infrastructure spending and inability to mobilise resources for the AMC business," says AnandRathi research report.
Non-Institutions holding more than 90% in Indian cos
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