Welcome, readers, to an essential exploration of IDFC First Bank fundamental analysis. Ever since the stock made headlines for its inclusion in the MSCI Global Standard Index, all eyes have been on this particular stock. It quickly became the buzzing stock in the market, garnering attention from renowned organizations like Motilal Oswal Financial Services, ICICI Direct, and several analysts who have given it a buy rating with a short-term price target of approximately ₹100.
A large-cap stock priced under ₹100, adorned with a buy rating from reputed institutions – who wouldn’t want to seize this sizzling opportunity? However, making a financial decision requires a comprehensive understanding, a 360° view. This is where we step in to assist you in obtaining what you need – a complete analysis of the stock. So, let’s get started!
IDFC First Bank Ltd- About the Company
IDFC First Bank Ltd. engages in the provision of financial and banking solutions. It operates through the following segments: Treasury, Corporate and Wholesale Banking, Retail Banking, Other Banking Business, and Unallocated.
The Treasury segment consists of the Bank’s investment portfolio; money market borrowing and lending; investment operations; and entire foreign exchange and derivative portfolio of the Bank. The Corporate and Wholesale Banking segment provides loans, non-fund facilities and transaction services to corporate relationship not included under Retail Banking, corporate advisory, project appraisal placement, and syndication.
IDFC FIRST Bank was founded by the merger of Erstwhile IDFC Bank and Erstwhile Capital First on December 18, 2018. Presently, the bank operates a network of 641 branches and 719 ATMs across India. Company is transforming from a corporate focussed low NIM bank to a retail focused high NIM bank.
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At the end of the blog, visit the live checklist to check if the stock passes key health criteria or it.
Industrial Trend: Future of Banking Industry in India
According to the Reserve Bank of India (RBI), India’s banking sector is well-capitalized and effectively regulated. The country’s financial and economic conditions stand out as superior compared to other nations globally. Studies on credit, market, and liquidity risks indicate that Indian banks have shown resilience, successfully weathering the global downturn.
In recent times, the Indian banking industry has witnessed the introduction of innovative banking models, such as digital payments and small finance banks. Significant banking sector changes including neo-banking, digital payments, the growth of Indian NBFCs, and fintech have been essential in boosting financial inclusion and igniting the nation’s credit cycle.
According to the EY 2021 NextWave Global Consumer Banking Survey, consumers’ major financial interactions have undergone a noticeable change as FinTechs and neobanks have gained considerable market share. India has the 3rd largest FinTech ecosystem globally.
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Opportunities Ahead
As per IBEF, a Trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India:
As of 2022, more than 80% of the population has a bank account in comparison to 17% in 2009. Bank assets across sectors increased significantly since 2020. In 2022-23, total assets in the public and private banking sectors were US$ 1,553.57 billion and US$ 901.3 billion, respectively. According to RBI’s Scheduled Banks’ Statement, deposits of all scheduled banks collectively surged by a whopping Rs.1.98 lakh crore (US$ 24.32 billion) as on May 5, 2023, at a growth rate of 10.2%. According to the BCG Banking Sector Roundup Report of 9M FY23, credit growth is expected to hit 18.1% in 2022-23 which will be a double-digit growth in eight years.
In recent years India has experienced a rise in fintech and microfinancing. India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in digital disbursements. By 2025, India’s fintech market is expected to reach Rs. 6.2 trillion (US$ 83.48 billion).
www.ibef.org
Growth in the banking industry is anticipated to be further boosted by increased infrastructure expenditure, quick project execution, and ongoing reforms. All of these indications point to the banking industry in India being well-positioned for strong development as rapidly expanding enterprises look to banks for their credit requirements.
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IDFC First Bank News & Analysis
IDFC First Bank Fundamental Analysis – Essentials & Financials
Operating Revenue and Growth: IDFC First Bank has been performing well with an impressive operating revenue of Rs. 29,650.19 Crore over the past year. The annual revenue growth rate of 34%, reflects its strong market presence and effective strategies.
Market Capitalization and Profitability: With a market capitalization of ₹58,096 Crore, IDFC First Bank falls into the category of large-cap stocks. What adds to its appeal is the bank’s decent profitability ratios. The ROE stands at 11.85%, indicating efficient utilization of shareholder funds. The Return on Capital Employed (ROCE) at 7.47% is another positive indicator of the bank’s operational efficiency.
Earnings and Valuation: The bank’s Earnings Per Share (EPS) is quite impressive at ₹4.12 per share, showing a remarkable year-on-year growth of +106.93%. This growth, combined with the bank’s lower Price to Earnings (P/E) ratio of 21.3, which is lower than the sector’s P/E ratio of 24.2, suggests that the stock might be undervalued. This combination makes the stock particularly attractive for investors.
Asset Portfolio Management: IDFC First Bank showcases efficient management of its overall asset portfolio. The Gross Non-Performing Assets (NPA) and Net NPA stood at 2.51% and 0.86% respectively, as of the latest financial year. These figures indicate the bank’s prudent approach to risk management and its ability to maintain a healthy loan book.
Valuation & Debt
Valuation Metrics: When it comes to assessing the bank’s valuation, one of the most insightful metrics is the Price to Book (P/B) ratio. Presently, IDFC First Bank is trading at a P/B ratio of 2.20, compared to its historical average of 1.30. This higher P/B ratio indicates the market’s confidence in the bank’s future prospects and its ability to generate returns for investors.
PEG Ratio: PEG ratio which is a more accurate measure for future performance, stands at 0.92. This indicates that the stock is potentially undervalued and has room for growth. This makes the stock attractive from an investor’s perspective.
Debt to Equity Ratio of 2.2 is higher than 1. This implies that company assets are financed through debt.
IDFC First Bank maintains high revenue growth, strong profitability ratios, exceptional profits growth, and favourable valuation measures.
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Shareholding Pattern
Shareholding Changes: During the quarter ending in June 2023, there were notable changes in the shareholdings of IDFC First Bank. The promoters’ holdings experienced a slight reduction from 39.99% to 39.93%, indicating a marginal decrease in their ownership stake.
Institutional Investors and Foreign Investors: In contrast, Foreign Institutional Investors (FII/FPI) showed an increased interest in the bank’s shares. Their holdings expanded from 19.31% to 20.85% during the same quarter, showcasing growing confidence in the bank’s performance and potential.
Mutual Fund Activity: Mutual Funds also displayed a positive inclination towards IDFC First Bank’s stock. Their holdings increased from 2.72% to 2.78%, emphasizing the attractiveness of the bank as an investment choice. This sentiment was further reflected in the increase in the number of Mutual Fund schemes from 19 to 21 during the quarter.
Institutional Investor Participation: The broader category of Institutional Investors demonstrated an overall uptick in their involvement with the bank. Their collective holdings rose from 30.99% to 32.54%, signifying a growing alignment with the bank’s strategic direction and future prospects.
The ownership landscape of IDFC First Bank saw intriguing changes in the June 2023 quarter. These shifts in who owns what mirror the evolving trust and sentiment regarding the bank’s future and how it’s doing.
Evaluating Financial Statements: IDFC First Bank Fundamental Analysis
Income Statements| Profit & Loss Statements
Now we are going to discuss one of the very important aspect of IDFC First Bank fundamental analysis, Its Income statement or also known as Profit and Loss statements. As the name suggests, we will talk about the revenues of the company, its expenditure and then the profit or loss it earned in a period of 5 years.
Income statements of IDFC First Bank Ltd. Source: Data compiled using moneycontrol.com
Revenue/Income: Over a 5-year period from March 2019 to March 2023, IDFC Bank has demonstrated a substantial increase in its Total Interest Earned – the core source of income or revenue in the banking sector. Total Interest Earned escalated from 12,204 crores in March 2019 to 22,727 crores in March 2023, reflecting an approximate growth of 85.96%. When considering other sources of income, the total income reached 27,195 crores in March 2023, marking a rise from 13,142 crores in March 2019.
Expenditure: The bank’s expenditures are chiefly comprised of the interest it pays to its account holders. This category has also witnessed significant growth. Interest Expended increased from 8,743 crores in March 2019 to 10,090 crores in March 2023, showcasing an increase of around 15.44% during the period. The total expenditure amounted to 24,710 crores in March 2023.
Net Profit: The bank’s profit is the difference between the balance between the Interest Earned from loans extended and the interest paid to various categories of account holders. In the case of IDFC First Bank, the net profit for the fiscal year 2023 reached 2,484 crores, a stark contrast to the -1,880 crores recorded in March 2019. The net profit for IDFC First Bank grew by roughly 231.49% from March 2019 to the fiscal year 2023.
EPS & Dividend
Dividend: Despite the company consistently reporting profits, it has refrained from distributing dividends. The dividend payout has remained at zero for the past 5 years.
Earnings Per Share (EPS): EPS is a vital metric that illuminates a company’s growth trajectory. A positive and increasing EPS signifies the company’s strong financial standing. In the case of IDFC First Bank, there has been a consistent upward trend over the last 5 years – progressing from -5 per share in March 2019 to Rs 4 per share in the preceding fiscal year. Consequently, IDFC First Bank’s EPS has surged by about 180% across the span of 5 years, spanning from March 2019 to the previous fiscal year.
| IDFC First Bank | Previous Years » | ||||
|---|---|---|---|---|---|
| Consolidated Profit & Loss account | ------------------- in Rs. Cr. ------------------- | ||||
| Mar 23 | Mar-22 | Mar-21 | Mar-20 | Mar-19 | |
| 12 mths | 12 mths | 12 mths | 12 mths | 12 mths | |
| INCOME | |||||
| Interest / Discount on Advances / Bills | 19,159.38 | 14,174.01 | 12,632.98 | 12,007.17 | 8,080.98 |
| Income from Investments | 3,232.20 | 2,615.37 | 3,039.21 | 3,917.28 | 3,905.65 |
| Total Interest Earned | 22,727.81 | 17,172.69 | 15,968.15 | 16,240.32 | 12,204.02 |
| Other Income | 4,467.28 | 3,172.59 | 2,253.80 | 1,722.41 | 938.64 |
| Total Income | 27,195.09 | 20,345.28 | 18,221.95 | 17,962.73 | 13,142.66 |
| EXPENDITURE | |||||
| Interest Expended | 10,090.64 | 7,465.07 | 8,585.13 | 10,228.27 | 8,743.24 |
| Payments to and Provisions for Employees | 4,278.59 | 3,099.87 | 2,301.52 | 1,795.01 | 1,279.37 |
| Depreciation | 0 | 382.41 | 342.51 | 320.01 | 2,820.32 |
| Operating Expenses (excludes Employee Cost & Depreciation) | 7,829.64 | 6,114.38 | 4,408.93 | 3,649.78 | 1,990.94 |
| Total Operating Expenses | 12,108.23 | 9,596.65 | 7,052.95 | 5,764.80 | 6,090.64 |
| Total Provisions and Contingencies | 2,511.29 | 3,151.25 | 2,100.70 | 4,813.05 | 188.8 |
| Total Expenditure | 24,710.16 | 20,212.97 | 17,738.78 | 20,806.12 | 15,022.68 |
| Net Profit / Loss for The Year | 2,484.93 | 132.31 | 483.18 | -2,843.39 | -1,880.02 |
| Net Profit / Loss After EI & Prior Year Items | 2,484.93 | 132.31 | 483.18 | -2,843.39 | -1,880.02 |
| Consolidated Profit/Loss After MI And Associates | 2,484.93 | 132.31 | 483.18 | -2,843.39 | -1,907.88 |
| Profit / Loss Brought Forward | 0 | -3,637.16 | -3,499.34 | -489.94 | 1,727.23 |
| Total Profit / Loss available for Appropriations | 0 | -3,504.85 | -3,016.16 | -3,333.34 | -180.65 |
| Equity Share Dividend | 0 | 0 | 0 | 0 | 307.79 |
| Balance Carried Over To Balance Sheet | 0 | -3,791.85 | -3,637.16 | -3,499.34 | -489.94 |
| Total Appropriations | 0 | -3,504.85 | -3,016.16 | -3,333.34 | -180.65 |
| OTHER ADDITIONAL INFORMATION | |||||
| EARNINGS PER SHARE | |||||
| Diluted EPS (Rs.) | 4 | 0 | 1 | -6 | -5 |
Cash Flows Statements
This metric provides a precise picture of the business’s capacity for cash generation, liquidity management, and payment of debt. While evaluating the company’s financial stability and long-term viability, this data is crucial. Careful analysis of IDFC first bank fundamentals revealed the following figures.
Cash Flow statements of IDFC First Bank Ltd. Source: Data compiled using moneycontrol.com
Operating Activities: It tells about the cash movements generated by the core business operations. This covers cash coming in from customers, money going out to suppliers and staff, and various operational expenses. These activities are like a window into the company’s knack for making cash through its main operations. Cash flows from operating activities for the IDFC Bank is fluctuating. It has declined drastically from 17,363 crores in March 2019 to 2,679 crores in March 2022 and improved to 3,563 crores in March 2023.
Investing Activities: This segment deals with the cash flows tied to investment endeavors. This can range from buying or selling long-term assets to making acquisitions and venturing into securities. Positive cash flows in this zone might suggest growth strategies or selling off certain parts. This has also been declining and negative in the past 5 years.
Financing Activities: This section unveils the cash flows linked with financial moves. Think of it as the story of issuing or buying back shares, borrowing funds, and repaying debt. It’s all about how the company gets cash from investors and creditors or gives it back to them. This segment has shown improvement from the previous years.
| Consolidated Cash Flow | ------------------- in Rs. Cr. ------------------- | ||||
|---|---|---|---|---|---|
| Mar '22 | Mar '21 | Mar '20 | Mar '19 | Mar '18 | |
| 12 mths | 12 mths | 12 mths | 12 mths | 12 mths | |
| Net Profit Before Tax | 132.31 | 483.18 | -2345.89 | -3237.43 | 1059.61 |
| Net Cash From Operating Activities | 2679.13 | 14041.71 | 10965.54 | 17363.78 | -5981 |
| Net Cash (used in)/from Investing Activities | -2960.47 | -2833.25 | -3790.19 | -1364.74 | -1024.11 |
| Net Cash (used in)/from Financing Activities | 10210.59 | -9598.18 | -12538.66 | -12220.31 | 6741.79 |
| Net (decrease)/increase In Cash and Cash Equivalents | 9929.25 | 1610.28 | -5363.31 | 4649.34 | -263.31 |
| Opening Cash & Cash Equivalents | 5773.12 | 4162.84 | 9526.15 | 4876.82 | 5140.13 |
| Closing Cash & Cash Equivalents | 15702.37 | 5773.12 | 4162.84 | 9526.15 | 4876.82 |
Net Cash Flows has also declined in three years time frame and is negative in the recent fiscal year. In order to make informed decisions, Compare the company’s cash flow from operations with its reported earnings and industry peers. Significant differences might indicate aggressive accounting practices.
Limitations Of IDFC First Bank
An analysis is incomplete without discussing the downside of the firm. In case of IDFC First Bank fundamental analysis, we have already discussed a lot of favourable aspects of the company and now is the time to reflect upon few shortcomings.
Stock Trading at 2.59 times Book Value: This valuation suggests that the market currently values the company’s assets higher than their book value, indicating potential investor optimism or expectations of future growth.
Investors might see the stock as overvalued if the market price significantly exceeds the book value per share.
No Dividend despite Consistent Profits: The company’s decision not to distribute dividends could be aimed at reinvesting profits into growth opportunities or paying down debt.
Investors might be interested in understanding the rationale behind this choice, whether it’s focused on expansion or other strategic initiatives.
Low Interest Coverage Ratio: A low interest coverage ratio may imply that the company’s ability to service its interest payments is limited, potentially raising concerns about its financial stability.
Lenders and creditors might consider this as a higher risk factor when evaluating the company’s creditworthiness.
Modest Return on Equity (ROE) of 5.40%: The lower ROE might indicate that the company is not efficiently generating returns on shareholder equity and could prompt a deeper analysis of its operational efficiency.
Investors might compare this ROE with industry peers to assess the company’s relative performance and its use of equity capital.
Contingent Liabilities of Rs. 2,15,754 Crore: Such a substantial amount of contingent liabilities could signal potential future financial obligations or legal claims, which may impact the company’s financial position. Investors and analysts might scrutinize these liabilities to understand their nature and potential impact on the company’s cash flows and profitability.
Highlights Of Earnings And Revenue For IDFC First Bank- Annual/Quarterly
Annual Revenue rose 33.7%, in the last year to Rs 27,195.1 Crores. Company’s annual revenue growth of 33.67% outperformed its 3 year CAGR of 14.67%. Annual Net Profit rose 1,778.2% in the last year to Rs 2,484.9 Crores. Stock gave a 3 year return of 208.63% as compared to Nifty 100 which gave a return of 71.18%. Stock Price rose 101.4% and outperformed its sector by 76% in the past year.
Quarterly Net profit rose 50.8% YoY to Rs 731.5 Crores. IDFC First Bank Ltd. reported a YoY increase of 28.79% in its advances, which is higher than its 5 yr CAGR of 11.96%. Company is able to expand its net interest margin on a continuous basis over the last 3 years with margins of 5.26% in last year.
IDFCFIRSTB earnings for the last quarter are 1.12 INR whereas the estimation was 1.15 INR which accounts for -2.61% surprise. Company revenue for the same period amounts to 51.59B INR despite the estimated figure of 50.38B INR. Estimated earnings for the next quarter are 1.29 INR, and revenue is expected to reach 53.15B INR.
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PEER Comparison
| Company Name | Price | % Chg | MCap(Cr) | TTM PE | P/B | ROE(%) | 1 Yr Perform(%) | Capital Adequacy Ratio(%) | Int. Earned(Rs.) | NIM(%) |
|---|---|---|---|---|---|---|---|---|---|---|
| IDFC First Bank | 87.65 | - | 58,137.01 | 21.27 | 2.83 | 9.61 | 96.30 | 16.82 | 22,727.81 | 5.26 |
| HDFC Bank | 1,650.75 | -0.03 | 1,245,856.09 | 25.54 | 3.70 | 15.89 | 12.91 | 19.26 | 170,754.05 | 3.67 |
| ICICI Bank | 977.70 | 0.21 | 684,218.46 | 18.35 | 4.40 | 16.10 | 16.82 | 18.34 | 121,066.81 | 3.60 |
| Kotak Mahindra | 1,832.95 | 0.08 | 364,283.96 | 22.32 | 3.77 | 13.34 | -0.63 | 21.80 | 42,151.06 | 4.47 |
| Axis Bank | 950.00 | 0.27 | 292,618.97 | 23.35 | 2.47 | 8.33 | 27.42 | 17.64 | 87,448.37 | 3.27 |
Checklist
Refer the checklist to summarise IDFC First Bank fundamental analysis.
BOTTOM LINE
Summing up, IDFC First Bank fundamental analysis. We now can summarise that the stock has a robust records of fundamentals and financials. Apart from few shortcoming, the stock is a great one.
That’s all for today’s post. Hope you get some valuable insights from here.
Happy reading!
Disclaimer
The blog is meant for informational purposes and serves the general analysis of the stocks. Contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist any direct recommendation about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfill their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
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