IDFC - 2QFY13 Results Update - Motilal Oswal

IDFC's 2QFY13 reported PAT grew 25% QoQ to INR4.76b (19% above est), led by lower-than-expected provisioning expenses and higher-than-expected fee income. Asset quality remained stable QoQ. Key highlights:

- NII grew 4% QoQ and 31% YoY to INR6.6b (in line with est) driven by healthy loan growth (+6% QoQ and +36% YoY) and ~7-8bp sequential improvement in spreads. Spreads (on a 12-month rolling basis) improved to 2.58% v/s 2.52% in 1QFY13 on the back of improvement in loan spreads.

- Fee income stood at INR1.44b (26% above est) led by higher-than-expected investment banking income (INR190m v/s INR30m in 1QFY13) and loan related and other fees. Gains from principal investments increased sharply to INR490m v/s INR20m in 1QFY13.

- Asset quality remained stable QoQ, with GNPAs at 0.28% and PCR at ~52%. Hence, provisioning expenses declined sharply to INR302m from INR1.03b in 1QFY13.

Valuation and view: IDFC has delivered strong performance on both growth and margin front. Expected monetary easing and reformatory steps by the government would be major catalysts in further improving the growth and profitability outlook. Healthy asset quality and prudent provisioning policy makes the company better-placed than peers. The stock trades at AP/ABV of 1.7x FY13E ABV and 1.5x FY14E ABV. Maintain Buy with a target price of INR187 (based on FY14E SOTP).

Source : Equity Bulls

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