IDBI Bank - HDFC Securities Sees An 'Opportunity', Puts A 'Buy' Rating

HDFC Securities Retail Research

Valuation and Recommendation:

IDBI Bank Ltd. recently declared its results for Q4 FY23, in which it reported total advances of Rs 1,62,568 crores, up 19/10% YoY/QoQ. On the liability side, it reported a total deposit of Rs 2,55,499 crores, growing by 10/19% YoY/QoQ.

Out of these deposits, current account and savings account balance stood at Rs 1,35,455 crores, which is up 2/7% YoY/QoQ. We have envisaged 16% CAGR in net interest income and 17% in net profit over FY23-25E, while the loan book is estimated to grow at 14% CAGR over same time frame.

As the collection efficiencies have improved and economic activities have picked up momentum, the asset quality should improve further. Return on average asset is estimated to improve to 1.3% by FY25E. It could display steady improvement in return ratios driven by growing advances and contained slippages.

About the company

IDBI Bank was constituted by Government of India under the Industrial Development Bank of India Act,1964, and was reconstituted as a banking company on October 1, 2004, to undertake commercial banking and development banking activities.

The erstwhile IDBI Bank, IDBI’s subsidiary, was merged with IDBI in 2005. In 2006, IDBI acquired United Western Bank. Due to financial stress, the bank was bought under the PCA framework by the Reserve Bank of India in FY17. The RBI pushed some hard steps into the bank and as result its loan book displayed de-growth of 23% between FY17-21 and profitability collapsed on the back of huge provisioning for bad loans.

These steps reaped benefits for the bank and now the loan book has grown by 19% in FY23 over FY22. In the past couple of years, the bank has displayed healthy deposit growth along with improvement in CASA ratio. Its asset quality has also improved during this tenure.

The bank has a low credit-deposit ratio along with healthy liquidity which provides it the necessary platform to tap on increasing credit demand in the Indian economy going forward.

Further, the Department of Investment and Public Asset Management had released a Preliminary Information Memorandum and invited Expression of Interest from Interested Parties for sale of a 60.72% stake held by GoI (30.48%) and Life Insurance Coporation of India (30.24%) out of the total 94.72% currently held by them.

We feel that the improved financial condition of the bank and the proposed disinvestment of Government’s stake, provides an opportunity for a turnaround in the bank’s story on the back of a potentially professional management taking charge

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