IDFC First Bank Q1: Brokerages Point To Weaker Asset Quality

Shares of IDFC First Bank fell after the lender reported weaker-than-expected asset quality in the first quarter of the current financial year.

The bank reported a net loss of Rs 630 crore in the April-June quarter, compared with a net profit of Rs 94 crore a year ago. A poll of analysts by Bloomberg had pegged the net profit at Rs 61.7 crore. Net interest income rose 25% over a year earlier to Rs 2,185 crore.

Profits were hurt by higher provisions as asset quality weakened. Gross non-performing assets rose to 4.61% as of June from 4.15% at the end of the previous quarter.

The net NPA ratio rose to 2.32% from 1.86% in the preceding three months.

IDFC First Bank said asset quality worsened due to a Mumbai-based toll road project. A single account worth Rs 854 crore was classified as NPA during the quarter due to disruption caused by Covid-19, it said, adding that it expects no economic loss from the account as it is a performing and operating toll project.

Excluding this account, gross NPA would have dropped to 3.77% in June.

Shares of IDFC Bank declined as much as 6.4% to Rs 48.65 in opening trade on Monday, compared with a 0.65% gain in the Nifty 50 index.

Trading volume was 14 times the 20-day average. The relative strength index on the stock was below 30, indicating it may be oversold.

Morgan Stanley

IDFC First Bank reported a loss driven by higher credit costs as retail delinquencies spiked due to the second Covid-19 wave. It wrote off loans aggressively and boosted provisioning coverage.

  • Credit costs during the quarter were at Rs 1,879 crore compared with the research firm’s estimate of Rs 669 crore.

  • Credit costs as a percentage of funded assets were substantially higher at 6.5% (annualised). This was because the company took significant write-offs as well as boosted provisioning coverage during the quarter.

  • Wholesale funded assets continued to decline, down 6% quarter-on-quarter.

  • Cuts EPS estimates by 46% / 4% / 2% for F22 / F23 / F24, respectively.

Prabhudas Lilladhar

  • Asset quality does not reflect high write-offs of Rs 1,800 crore given the business construct and write-offs rule of the bank.

  • Restructured loans also were higher from sub-1% to 2% with retail at 1.8% and could rise to 2.5% in the next few months.

  • Bank has maintained a 51% provision coverage ratio on overall book and 53% on retail.

  • Increases slippages ratio to 4.5% from 3.5% and credit cost from 170 basis points to 300 basis points for FY22.

  • Strong growth in net interest income on the back of reflection of 150 basis points of savings account rate cut in May 2021 and benefit of improving retail mix.

  • Fee income growth was decent given backdrop of lockdown, also reflected in operating expenses being lower sequentially.

  • Retains ‘reduce’ with a target price of Rs 45 based on 1.3 times September 2023 adjusted book value, given provisions, asset quality challenges and operating expenses remain high.

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