MOSL: IDFC BANK (Neutral)-Going retail-Merger with Capital First provides abundant opportunities
IDFC BANK: Going retail; Merger with Capital First provides abundant opportunities
(IDFCBK IN, Mkt Cap USD3.4b, CMP INR64, TP INR65, 1% Upside, Neutral)
Management of IDFC Bank (IDFCB) hosted a concall to discuss the details of the announced merger with Capital First (CAFL).
CAFL complements the IDFC franchise
The proposed merger is expected to help IDFCB get closer to its target of 60% share of retail loans by 2021. Post the merger, the share of retail loans for the consolidated entity would stand at 45%. In addition, the target customer segment of CAFL is complementary to that of IDFCB – CAFL targets predominantly the SME/MSME space, while IDFCB targets the rural population through its ‘Bharat Banking’ model and the affluent urban population. CAFL fills in the missing link, making the consolidated entity relevant to the entire spectrum of customers. In addition, with the planned ramp-up of IDFCB branches, the consolidated entity would have 250 branches across 35 cities by March 2018.
Regulatory drag lower than expected
One of the key investor concerns regarding the merger was the drag on profitability due to regulatory requirements on CRR, SLR and PSL. However, management clarified that CAFL is by-and-large self-compliant with respect to PSL – i.e. over 40% of its loans are PSL-compliant. However, there would be some sub-categories wherein CAFL would be deficient. In those cases, the bank will have to take efforts to make up for the deficiencies.
IDFC Bank is a universal banking company based in India. Co. is active in the banking sector with a focus on Commercial and Wholesale Banking, Bharat Banking and Personal and Business Banking business and an added emphasis on infrastructure financing. Co.'s banking business consists of three distinct strategic business verticals as follows: Commercial and Wholesale Banking caters to large corporates, mid-markets & SME clients (commercial banking), Government business, financial institutions, treasury, cash management, transaction banking and investment banking; Bharat Banking caters to semi-urban and rural areas; and Personal and Business Banking caters to the urban retail consumers.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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