Neutral on IDFC - Motilal Oswal

IDFC (IDFC IN; Mkt Cap USD4.7b, CMP Rs141, Neutral)

Business momentum slowed down, with sanctions declining 44% YoY to Rs37.4b for 3QFY11. Disbursements were up 68% YoY to Rs51.3b.

Spreads (12-months rolling) remained stable on a QoQ basis at 2.4%, NII as a percentage of average assets improved 20bp QoQ to 3.8%.

Fee income (non-interest income ex trading profits) improved 26% YoY, led by improvement in loan-related and other fee income.

Asset quality remains impeccable, with NNPA ratio at 11bp as at 2QFY11. The company made 65bp of standard provisions for incremental disbursements.

While the stock has corrected 30%+ from its recent peak, slowdown in loan growth and stressed liquidity conditions is likely to be a key headwind in the near term. The stock trades at 1.5x FY12E ABV and 13.8x EPS. Neutral.

Source : Equity Bulls

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