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IDFC Bank: Legacy Book Continues to Drag Profitability - Views on News from Equitymaster

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  • Nov 7, 2017 - IDFC Bank: Legacy Book Continues to Drag Profitability

IDFC Bank: Legacy Book Continues to Drag Profitability
Nov 7, 2017

IDFC Bank declared its results for the second quarter of the financial year 2017-18 (2QFY18). The bank posted a 6.6% YoY growth in interest income and 40% fall in profit during the quarter. Here's our analysis of the results.

Performance summary
  • Interest Income grew by 6.6% YoY in 2QFY18 on a 135% jump in credit investments and 3% YoY fall in net advances. For 1HFY17, interest income was up by 7.6% YoY.
  • A faster rise in interest expense pulled down net interest income by 6.8% YoY during the quarter. NIMs (net interest margin) contracted by 0.5% YoY to 1.7% for the quarter. For 1HFY17, net interest income was down by 14.5% YoY.
  • Operating expenses grew by a controlled 12% in 2QFY18 aided by a modest 3% rise in employee costs. During 1HFY17, operating expenses grew by 27.5% YoY pulling up cost-to-income ratio to over 40%.
  • Non-fund based income comprising of fees, commission, earnings from foreign exchange, derivatives and profit/ loss from sale of investments fell by a steep 65% YoY during the quarter. For 1HFY18, other income was up by 27.5% YoY.
  • The gross bad loans ratio fell to 3.9% in 2QFY18 as compared to 6% in the year-ago quarter. The bank has written back provisions of Rs 1.1 billion towards provision for dimunition against shares on realized loss on sale of shares.
  • Due to downfall in total income, net profit fell by 40% YoY during the quarter. For 1HFY18, net profit grew by a subdued 3% YoY.
  • Capital adequacy ratio stood at 19.2% of which Tier I capital adequacy ratio stood at 18.7% at the end of 2QFY18.

    Financial snapshot
    Rs (m) 2QFY17 2QFY18 Change 1HFY17 1HFY18 Change
    Interest income 20,830 22,198 6.6% 40,585 43,650 7.6%
    Interest expense 15,874 17,580 10.7% 30,640 35,151 14.7%
    Net Interest Income 4,956 4,619 -6.8% 9,945 8,499 -14.5%
    Net interest margin (%) 2.20% 1.70%   1.8% 1.7%  
    Other Income 4,100 1,452 -64.6% 6,226 7,941 27.5%
    Other Expense 3,233 3,623 12.1% 5,999 7,517 25.3%
    Provisions and contingencies 223 -1004   459 -1,150  
    Profit before tax 5,600 3,452 -38.4% 9,713 10,072 3.7%
    Tax 1,722 1,115 -35.3% 3,187 3,360 5.4%
    Profit after tax/ (loss) 3,878 2,337 -39.7% 6,525 6,712 2.9%
    Net profit margin (%) 18.6% 10.5%   16.1% 15.4%  
    No. of shares (m)         3,402  
    Book value per share (Rs)*         44.3  
    P/BV (x)         1.27  

    * (Book value as on 30th Sep 2017)

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