Transcript IDBI LTD. - Venkataraman

IDBI LTD.
Technical Outlook
Short Term Target: 150-190
Medium Term Target: 240-300
We Initiate Buy with a target of 150 on short term view.
We could see an Inverted Head and Shoulder formation on weekly
Basis. A break out of 155-160 could lead the rally to 190-240 on
medium term.
Use stock correction as an opportunity to Accumulate in the range
of 125-135 with a target of 240
IDBI LTD.
Investment rationale
IFCI corporate developments an immediate trigger
IDBI owns around 5% of IFCI. IFCI is currently under-going a structural change in
its existence with a probable infusion of a strategic partner with a global pedigree
and Indian aspirations. IDBI also co-owns with IFCI, structural gems of capital
markets like SEBI, NSE, SHCIL, CARE, ISIL, OTCEI and NSDL. It also owns
sizable holdings in Money Market institutions like DFHIL, STCIL and CCI.
Potential of value unlocking from the Investments portfolio
Apart from these investments, IDBI owns equity investments in
various companies and institutions. The bank has quoted equity
investments of Rs 85.1bn (Book Value as on March 2006), with a
market value of Rs 85.9bn. We expect the bank, to monetize a
sizeable proportion of its quoted and unquoted investments over
the next couple of years to restrict this exposure to the regulatory
compliance limit by Sept’09. The discounted realizable value of
these investments are worth Rs 82.3/ share of IDBI.
IDBI LTD.
UWB acquisition benefits to accrue in the long-run
IDBI’s acquisition of UWB (in Oct’2006) is expected to be beneficial
over the long run for the bank. The acquisition increased IDBI’s network
by 230 branches from 195 branches to 425 branches. IDBI can leverage
on UWB’s widespread network, access to the Low Cost Deposits and
expand its Retail Credit Portfolio.
Improved Operational Performance on recoveries &
restructured assets
IDBI has assets of about Rs130bn under a Stressed Assets Stabilisation
Fund (SASF), which were transferred at Rs90bn. The Bank is expected
to make recoveries from these SASF accounts, and subsequently redeem
the zero-interest bearing securities (means improved NIMs).
IDBI LTD.
Plugging The Missing Pegs
IDBI is also focusing on increasing its Fee Based Income. It has tied up with Fortis
Insurance & Federal Bank to form a Life Insurance company, where the Bank holds
major stake i.e. 48%. Further, leveraging on corporate relationships, the Bank is
expected to increase its offerings and enter businesses such as Assent Management
company.
View and Valuation
IDBI’s business model is blessed with regulatory forbearance. Its transition to a
potential banking monolith has just been initiated. In the near future, its strategic
evolution would rest on potential unlocking from investments and operational
improvement – something we feel is a compulsive regulatory conclusion. We expect
the bank to definitely unlock value from its investments in next couple of years – and
expect the stock to get re-rated on the back of concurrent improved operation of the
Bank’s core business on an efficient business structure.
Valuation
IDBI LTD.
Core Business – a core focus
IDBI has registered decent growth in its core business operations i.e., its
business volumes with a thrust on its Deposits portfolio. During the
period FY2005-07, aggregate business of the bank grew at a CAGR of
32.2% with deposits growing at a CAGR of 69.4%. In the same period,
the bank’s credit portfolio grew at a CAGR of 17.3% thereby beefing up
its revenue stream from its core business activity.
With an up tick in the Indian credit cycle driven by a burgeoning economy,
we expect the bank to leverage its existence corporate relationship to
expand its business volumes. Further, with a wider geographic coverage
post the acquisition if UWB, the bank is better placed to garner market
share from non industrial portfolio also. Going forward, we expect the
bank’s advances to grow at a CAGR of 21% to Rs 914bn between
FY2007-09E and deposits would grow at 36.6% to Rs 809bn.
IDBI LTD.
IDBI LTD.
IDBI LTD.
Q1FY2008 Financial Performance

Net Interest Income declined by around 35% to Rs 629mn on the back of 35%
rise in the Interest Expenses.

Non Interest Income grew by around 40% to Rs 4bn driven by sale of
Investments to the tune of Rs 2.6bn (NSE stake sale - Rs 2bn and
Others (Rs 0.6bn).

Operating Expenses grew by 8.3% on the back of 36% rise in Staff Cost.

Aggregate Provisions more than doubled to Rs 1bn, lead by 194% rise in Other
Provisions and 53% increase in Tax Provision.

Net Profit grew by mere 2% to Rs 1.5bn.

The Banks’ Total Business grew by 30% driven by Deposits growth of 61% to Rs 468bn and
Advances growth of 14% to Rs 598bn.
IDBI LTD.
IDBI LTD.
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Disclaimer:
This report has been prepared solely for information purposes and the
information contained herein may not be deemed to be an investment advice.
Such information is impersonal and not tailored to the investment needs of any
specific person. The information contained herein is not a complete analysis of
every material fact representing any company, industry or security. The views
expressed may change. While the information contained herein has been
obtained from sources believed to be reliable, no responsibility (or liability) is
accepted for the accuracy of its contents. Investors are advised to satisfy
themselves before making any investments and should consult with and rely
upon their own advisors whether and how to use such information in making
any investment decision. Neither the author nor his firm accepts any liability
arising out of use of the above information/ article. This report is exclusively for
the clients of Venkataraman & Co. only.
VENKATARAMAN & CO.,
Stock & Share Brokers, New No.2 (Old No.52)
Dr. Ranga Road, Mylapore, Chennai 600 004.
Web: www.venkataraman .com E-mail: [email protected]