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.
What Brokerages Say
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.
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.