Dec 8, 2004|
IDBI Bank: Well-defined growth trajectory
Known for optimizing its retail franchise as a bulwark for high quality growth, IDBI Bank is now poised to embark on an aggressive expansion path. Besides expanding its retail network across 15 new cities, the bank is envisaging two strategic business units, post its merger with IDBI. While one SBU (erstwhile IDBI) will focus on development finance (corporate banking), the other SBU (the current IDBI Bank folio) will cater to commercial banking needs, the stress being on retail.
Through its conservative provisioning norms and focus on low cost deposits (low cost deposits as a percentage of total deposits was 43.3% in FY04, as against 34.9% in FY03), the bank has sketched an enviable growth route over the past few years. With a combination of clean portfolio of advances and a well spread branch network, the bank has achieved a CAGR of 33% on its Net Interest Income (NII) over the last 5 years.
The spurt in the number of primary market issues in the last few years has also contributed to the bank’s profitability. It has become one of the largest collecting bankers to IPOs and made significant strides in IPO Finance.
The impending merger with parent company IDBI raises several issues regarding IDBI Bank’s operational efficiency and valuations. A look at the bank’s performance across various parameters over the last 5 years answers this and more…
Source: Annual reports
|Mkt. Price (Rs) (as on Dec 1)
|P/ Adj BV (x)
|Credit / Deposit Ratio
|NPA to advances
|Business/employee (Rs m)
|Business / branch (Rs m)
|Profits/employee (Rs m)
The bank has achieved a commendable feat of augmenting its Credit - Deposit ratio (Advances/ Deposits) at a CAGR of 10% over the last 5 years, at the same time bringing its Net NPA /Advance ratio close to that of industry benchmarks like HDFC Bank. This can be attributed to the bank’s rigorous assessment of asset quality and appropriate provisioning for the same.
Given the fact that the proposed merger will be beneficial to both the entities (IDBI will have access to low cost deposits and retail network, and the combined entity will now claim to be the 2nd largest bank replacing ICICI Bank), what remains to be seen is the all decisive “merger ratio”.
At the current price of Rs 52, IDBI Bank is trading at a price to book value of 1.6 times its FY05 expected numbers, while at a price of Rs 97, IDBI is trading at a price to book value of 0.8 times its FY05 expected numbers. While it is difficult to pinpoint on the merger ratio between the two, the facts in the table given below, are indicating that the merger ratio may be in favour of IDBI.
A comparitive study...
*Figures pertain to FY04. For IDBI the numbers are reasonable estimates for 18 month period ending September 2004
|Net NPA to advances
|No. of branches
|No. of employees
|No. of shares outstd.
|Stake held by IDBI in IDBI Bank
|No. of shares held by IDBI in IDBI Bank
Let’s also not forget the fact that IDBI Bank is a 56% subsidiary of IDBI. But please note, that this is just a direction and the ultimate result may differ than the actual.
More Views on News
Aug 10, 2017
IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.
Aug 10, 2017
Asset quality will be the key thing to watch out for going forward.
Jul 31, 2017
Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.
Jul 25, 2017
Asset quality was under pressure on account of farm loan waivers. Despite the higher provisioning, the company reported a healthy profit growth of 20%.
May 23, 2017
State Bank of India (SBI) ended FY17 on a healthy note but concerns on bad loans from associate banks remain.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407