Refinancing opportunities will aid loan growth of 18%-20% for IDFC, says Edelweiss
IDFC’s Q3FY13 net profit of Rs4.5 billion (up 18% year-on-year) was lower than Edelweiss’ estimate.
However, lending business’ core metrics were maintained and the difference was due to:
(a) lower principal gains;
(b) higher provisions as DCHL (Deccan Chronicle Holdings) exposure is provided to the extent required; and
(c) muted capital market related revenue.
Lending business came in steady with further 5 basis points NIM (net interest margin) surge to 4.1% and no fresh NPA (non-performing assets) accretion. Loan book came in flattish as disbursements were lower, while there were a few large repayments, according to Edelweiss.
Growth guidance continues at 15%-20% for FY13E (11% YTD). Edelweiss believes that refinancing opportunities will aid loan growth of 18%-20%, declining wholesale rates will support NIMs while provisioning cover of 1.7% of loans will keep credit cost under check. Edelweiss maintains a ‘BUY’ recommendation for the shares of IDFC on the stock exchange.
After 35% year-on-year loan growth in H1FY13, in Q3FY13 the book grew a tad slower at 22% to Rs541 billion as disbursements dropped more than 50% quarter-on-quarter.
The management of IDFC continues to maintain guidance as the pipeline is robust, though on a quarterly basis, growth can be sporadic. Growth does not necessarily indicate any major green field projects expansion or pick up in investment activities, but is more a function of refinancing demand. FY14 still hinges o n policy reforms, while refinancing can support the next 12-18 months.
IDFC continued to post a strong performance on asset quality front as headline numbers of GNPA/NNPA came in at 0.26%/0.12%. The company had Rs1.45 billion exposure to Deccan Chronicle, of which Rs1 billion has now been written off and maybe Rs0.1 billion provisioning might be done in Q4FY13.
The management indicated that absolute NPL (non-performing loan) is likely to increase from current low levels, but will be within manageable limits.
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