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IDFC: Ends FY17 on a Healthy Note - Views on News from Equitymaster
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IDFC: Ends FY17 on a Healthy Note
May 30, 2017

IDFC declared the fourth quarter results of financial year 2016-2017 (4QFY17). The income from operations grew by 23.5% YoY whereas profits grew by 3.3%YoY during the quarter. Here is our analysis of the results.

Performance summary
  • During each of the 4QFY17 and FY17 periods, net interest income (NII) was up by 18.7% YoY.
  • With the treasury book, initially built for the banking foray, being increasingly deployed for lending, other income in 4QFY17 and FY17 fell by 93.8% and 66% YoY, respectively.
  • The operating expenses jumped up by 25.8% YoY during the quarter. The cost-to-income ratio shot up to 60% in 4QFY17 from 55% in 4QFY16. For FY17, the cost-to-income ratio increased to 46% as compared to 38% in the year-ago period. As per the NBFC, the cost-to-income ratio is expected to remain above 40% due to growth in banking business before the scale benefits start trickling in.
  • The asset quality of the bank, after slipping to 7% in the December 2016 quarter due to one-off deterioration in the non-legacy corporate loan book, recovered to 6.2% in the March 2017 quarter. For FY17, the gross and net bad loans ratio stood at 3% and 1.1%, respectively. The bank is confident that provisioning on the legacy stressed asset book remains sufficient.
  • There was a write-back of provisions to the tune of Rs 130 m during the March 2017 quarter. However, a steep fall in the other income earned has resulted in a tepid growth of 3.3% YoY in net profit during the quarter. But for FY17, the provisions were down 15% YoY. The NBFC posted a profit of Rs 6.9 billion for FY17 compared to a loss of Rs 9.4 billion booked in the preceding year.
  • The capital adequacy ratio of IDFC stands at a robust 18.9% at the end of March 2017 (Tier-1 ratio of 18.5%). The NBFC's Infrastructure Finance business remains well capitalized with a capital adequacy ratio of 29%.
  • The NBFC has recommended a dividend of Rs 0.25 on a share of face value of Rs 10. At current market price, the dividend yield works out to 0.4%.

    Consolidated financial performance snapshot
    Rs (m) 4QFY16 4QFY17 Change FY16 FY17 Change
    Income from operations 20,858 25,769 23.5% 89,423 104,582 17.0%
    Interest expended 14,044 17,683 25.9% 57,356 66,503 15.9%
    Net Interest Income 6,814 8,086 18.7% 32,067 38,079 18.7%
    Net interest margin            
    Other Income 158 10 -93.8% 281 95 -66.0%
    Operating expense 3,858 4,853 25.8% 12,287 17,480 42.3%
    Provisions and contingencies -38 -130   3,267 2,779 -14.9%
    Exceptional items 0 0   26,387    
    Profit before tax 3,152 3,372 7.0% -9,593 17,915  
    Tax 446 890 99.4% -3,675 4,829  
    Effective tax rate 14.2% 26.4%   38.3% 27.0%  
    Share of profit from associates -218 -195   -650 -688  
    Minority interest 1,184 939 -20.7% 2,780 5,408 94.5%
    Profit after tax/ (loss) 1,304 1,348 3.3% -9,348 6,991  
    Net profit margin (%) 6.3% 5.2%   -10.5% 6.7%  
    No. of shares (m)         1,596  
    Book value per share (Rs)*         67.8  
    P/BV (x)         0.9  

    * (Book value as on 31st Mar 2017)

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Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

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  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
  2. Equitymaster has financial interest in IDFC.
  3. Equitymaster’s investment in the subject company is as per the guidelines prescribed by the Board of Directors of the Company. The investment is however made solely for building track record of its services.
  4. Equitymaster's Associate has financial interest in IDFC
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