IDFC looking forward in generating good revenue
We downgrade IDFC to ‘neutral’ from ‘buy’ with a fair value of R143 a share. We are not pricing in a blue-sky scenario as of now. IDFC is trading at 1.3x FY16e adjusted book value and we expect it to generate 13 percent return over the next 10 years in the base case (target multiple of 1.5x), which is equal to our cost of equity assumption (13 percent).
We expect the known unknowns to weigh on the stock. RBI’s guidelines on long-term bonds have reduced the stress on the financials of IDFC as it transitions into a bank. We expect a trough RoA of 1.4 percent in FY18e vs our earlier estimate of 1 percent. In addition to this, IDFC can grow its loan book till FY18 (this was not envisaged earlier).
However, in our view, there is uncertainty related to a) the demand for these bonds; b) significant dependence on one line of financing (business models based on regulatory incentives are not sustainable) and c) asset-liability mis-matches.
The company is expecting to generate a good amount of revenue.
Source: The Financial Express
IDFC, IDFC Alternatives, IDFC Real Estate Yield Fund, RBI guidelines, realty fund raised by IDFC Alternatives
