IDFC First Bank Stock Analysis | Why it is falling?

IDFC First Bank Q4 FY20 Financial Highlights

Introduction

IDFC First Bank in Q4 FY20 posted a net profit of Rs.72 Cr on account of a robust growth across Net Interest Income, Non-Interest Income, CASA deposits and Retail Loan Book. Also, there was a decline in provisions QoQ by almost 70%, due to which Bank’s Net Profit has come into the positive territory for the first time since the merger.

IDFC First Bank Q4 FY20 Results Analysis

Q4 FY20 Results

Net Interest Income (NII)

• NII is a very important parameter for analysing the core business growth of the bank.
• Net Interest Income = (Interest Income – Interest Expenses)
• Interest Expenses are nothing but the finance cost incurred by the company while raising funds which are going to be available for the lending.
• Net Interest Income is increased by 40% YoY driven by :
  • Robust YoY growth in CASA deposits (162%) and Retail Term Deposits (107%)
  • Decline in Interest Expenses by 5% YoY due to 6% fall in total borrowings
  • Improved Net Interest Margin QoQ as well as YoY

Pre-provisioning Operating Profit (PPOP)

• Operating Profit before making provisions is called as Pre-provisioning Operating Profit (PPOP)
• PPOP = (Total Operating Income – Operating Expenses)
• Pre-provisioning Operating Profit is increased by almost 70% YoY (Excluding Trading Gains) on account of :
  • Robust growth in NII by 40% & Operating Income by 67% YoY
  • Fall in Interest Expenses by 5% YoY

Net Profit

• In Q4 FY20, bank has made total provisions of Rs.679 Cr up 4% YoY, out of which COVID-Related provisions were Rs.225 Cr.
• Profit Before Tax (PBT) in Q4 FY20 was at Rs.107 Cr from a loss of Rs.417 Cr last year same quarter.
  • Bank’s financial performance has come into the positive territory for the first time in Q4 FY20 after the IDFC Bank and Capital First merger last year in Q3 FY19.
  • It is a very positive sign for the bank, that it is successfully consolidating its balance sheet and building a Retail-oriented Business Model under the visionary leadership of Mr. V. Vaidyanathan, MD & CEO IDFC First Bank.
• Net Profit for Q4 FY20 stood at Rs.72 Cr from a loss of Rs.218 Cr in Q4 FY19. Thus, Q4 FY20 is a quarter delivering a Loss to Profit YoY.

Net Interest Margin

• Net Interest Margin (NIM) and the asset growth, both drives the Net Interest income of the SBI cards.
• Bank’s NIM is improving consistently QoQ post merger.
• In Q4 FY20, NIM improved Significantly by 121 bps to 4.24% from 3.03% Q4 FY19. NIM was 3.86% in Q3 FY20.

Decoding the Balance sheet Q4 FY20

Balance sheet Size

• Bank’s balance sheet size has declined by almost 11% YoY as well as 7% QoQ on account of the targeted Retail-Oriented Portfolio Consolidation.
• Post IDFC Bank-Capital First Merger, IDFC First Bank’s balance sheet has gone through a series of consolidation process.
• Here, bank’s key focus is to build the Quality balance sheet with higher Retail share in Advances as well as Deposit Mix. So, in order to achieve it, there was a decline in :
  1. Wholesale Loans
  2. Wholesale Deposits

Advances

• The Bank’s Net Loan Book aggregated to Rs.98,062 Cr as of March 31, 2020, with a decline of 8% as compared to Rs.1,06,873 Cr as of March 31, 2019.
• Also, as far as Advances Mix is concerned, Retail Loan Book’s % share in the total Loan Book is rising consistently.
• A year ago (in Q4 FY19), Retail Loans were 37% of Total Loan Book, while Wholesale Loans were contributing almost 63%.
• However, as on Q4 FY20, Retail : Wholesale Loan Mix was 54% : 46%. It is mainly because of the Banks’s primary focus of building a Retail-Oriented Business Model and to Make IDFC First Bank a purely Retail-oriented Bank.

Deposits

• Bank’s deposits aggregated to approximately Rs.65,108 Cr as of March 31, 2020, a decline of 8% as compared to Rs.70,479 Cr as of March 31, 2019.
• A robust growth is seen in CASA deposits which are at Rs.20,661 Cr in Q4 FY20 from Rs.7,893 Cr in Q4 FY19, thus grew by 162% YoY.
• CASA ratio stood at around 31.9% as of March 31, 2020, as compared to 11.4% as of March 31, 2019 and 24.1% as of December 31, 2019.
• As you can see in the above table, CASA Ratio is improving consistently quarter-on-quarter, which is a key driver of the subdued interest expenses YoY.

Asset Quality

• Gross non-performing assets (GNPA) improved by 23 bps QoQ to 2.60% in Q4 FY20 from 2.83% in Q3 FY20. If YoY Gross NPA numbers are compared, it is slightly eroded by 17 bps YoY, from 2.43% in Q4 FY19 to 2.60%.
• Net NPA is also improved by 29 bps from 1.23% in Q3 FY20 to 0.94% in Q4 FY20. While there is an improvement by 33 bps YoY from 1.27% in Q4 FY19 to 0.94% in Q4 FY20.
• In accordance with the COVID-related uncertainties, bank’s Provision Coverage Ratio is increased to 64.53% in Q4 FY20 from 48.18% in Q4 FY19 and 57.34% in Q3 FY20.