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IDFC: Waiting for earnings growth visibility - Views on News from Equitymaster
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IDFC: Waiting for earnings growth visibility
Feb 8, 2016

IDFC declared the third quarter results of financial year 2015-2016 (3QFY16). The income from operations fell by 12.1% YoY, and the profits were down by 58% YoY during the quarter. Please note that the financials of the quarter are not directly comparable with that of corresponding quarter of last year as the cost for setting up banking operations has come only in the last two quarters. Here is our analysis of the results.

Performance summary

  • For the 3QFY16, net interest income (NII) was down by 22.3% YoY. The downfall is on account of lower NII reported by the bank. During 9mFY16, NII was lower by 12.8% YoY.
  • Other income in 3QFY16 grew over five-folds aided by interest on income tax refund of Rs 93.9 m. For 9mFY16, other income was down by 82.5% YoY.
  • The operating expenses jumped up by 54% YoY during the quarter. The cost-to-income ratio at 39% in 3QFY16 was much higher than 20% recorded in 3QFY15. For 9mFY16, the cost-to-income ratio stood at 33% as compared to 15% in the year-ago period.
  • Due to escalation in operating expenses, the net profit fell by 58% during 3QFY16. For 9mFY16, the NBFC posted a loss of Rs 10.6 bn due to creation of one-time specific provisions of Rs 25 bn along with reversal of unrealized interest on stressed assets. After adequately providing for stressed assets, there has been a steep decline in provisions for 3QFY16 and 9mFY16.
  • The capital adequacy ratio of the bank stands at a robust 20.3% at the end of December 2015 (Tier-1 ratio of 19.5%). The NBFC's Infrastructure Debt Fund (IDF) business stands well capitalized with Tier -1 capital of Rs 5 bn and asset base of over Rs 10 bn.
  • The Net NPAs (Non-Performing Assets) ratio for the bank stands at 1% on 31st December 2015.
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