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IDFC Bank: One-Off Trading Loss, Expansion Pull Down Profits - Views on News from Equitymaster

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  • Feb 8, 2018 - IDFC Bank: One-Off Trading Loss, Expansion Pull Down Profits

IDFC Bank: One-Off Trading Loss, Expansion Pull Down Profits
Feb 8, 2018

IDFC Bank declared its results for the third quarter of the financial year 2017-18 (3QFY18). The bank posted a 1.5% YoY growth in interest income and 24% fall in profit during the quarter. Here's our analysis of the results.

Performance summary
  • Interest Income grew by 1.5% YoY in 3QFY18 on a 9% rise in retail and corporate advances. Corporate banking (ex- infrastructure) assets jumped 22% to Rs 213.8 billion, while direct retail assets rose 249% to Rs 59.9 billion during the quarter. For 9mFY18, interest income was up by 5.4% YoY.

    Tepid growth in advances
    (Rs m) 31-Dec-17 31-Dec-18 Change
    Gross advances 619,156 674,880 9.0%
    Deposits 270,010 422,590 56.5%
  • A faster rise in interest expense pulled down net interest income by 5% YoY during the quarter. NIMs (net interest margin) contracted marginally to 1.9% for the quarter. For 9mFY18, net interest income was down by 11.2% YoY.
  • Operating expenses grew by a faster 8.5% in 3QFY18 on account of investments in building a retail network as the bank remains on course to transform into a mass retail bank. IDFC bank added 27 branches in the December 2017 quarter taking the overall network to 127. Non-HR expenses were up by 33% YoY during the quarter. During 9mFY17, operating expenses grew by 18.8% YoY pulling up cost-to-income ratio to over 49% from 40% in the year-ago quarter.
  • Non-fund based income comprising of fees, commission, earnings from foreign exchange, derivatives and profit/ loss from sale of investments fell by a steep 30.9% YoY during the quarter. The fall was due to a trading loss of Rs 330 m net of marked-to-market even as fees and commission were up by 27% YoY. For 9mFY18, other income was up by 7.1% YoY.
  • Due to fresh slippages of Rs 8 billion, the gross bad loans ratio increased to 5.6% in December quarter as compared to 3.9% in the preceding quarter. However, the stressed assets remain unchanged at Rs 5.3 billion (net of security receipts). But the provision cover of Rs 3.7 billion at 66% remains adequate.
  • Trading loss and higher investments in building the retail network have led to a 23.6% YoY fall in net profit for the bank. For 9mFY18, the net profit fell by 3% YoY.
  • Capital adequacy ratio stood at 19.2% of which Tier I capital adequacy ratio stood at 18.8% at the end of 3QFY18.

    Financial snapshot
    Rs (m) 3QFY17 3QFY18 Change 9mFY17 9mFY18 Change
    Interest income 22,509 22,837 1.5% 63,093 66,487 5.4%
    Interest expense 17,301 17,888 3.4% 47,941 53,038 10.6%
    Net Interest Income 5,208 4,950 -5.0% 15,152 13,449 -11.2%
    Net interest margin (%) 2.1% 1.9%     1.8%  
    Other Income 3,342 2,308 -30.9% 9,568 10,248 7.1%
    Other Expense 3,789 4,110 8.5% 9,789 11,627 18.8%
    Provisions and contingencies 2318 1086   2,777 -64  
    Profit before tax 2,443 2,061 -15.6% 12,155 12,134 -0.2%
    Tax 530 600 13.2% 3,717 3,960 6.5%
    Profit after tax/ (loss) 1,913 1,461 -23.6% 8,438 8,174 -3.1%
    Net profit margin (%) 8.5% 6.4%   13.4% 12.3%  
    No. of shares (m)         3,403  
    Book value per share (Rs)*         44.7  
    P/BV (x)         1.19  
    *(Book value as on 31st Dec 2017)
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