IDFC plunges 50% ex-demerger

NEW DELHI: Shares of IDFC closed the day 57.32 per cent down at Rs 60.30 on Thursday following demerger of IDFC (holding company, IDFC FHCL) and IDFC Bank, which is going to launch banking operations on Thursday.

IDFC Bank will start functioning as a full-fledged bank from Thursday with over 20 branches. Rajiv Lall will be taking over as the MD & CEO of IDFC Bank with effect from October 1, IDFC added.

Parent firm IDFC FHCL will hold 53 per cent stake in IDFC Bank and the remaining 47 per cent will be held by IDFC’s shareholders directly. The shares of IDFC Bank will get listed in the first fortnight of November.

"IDFC is demerging its financing business into IDFC Bank effective from October 1. The holding company discount and fair value of IDFC FHL has yet to be ascertained. However, we estimate IDFC FHL to fetch Rs 94 (holding company discount of 40 per cent) and IDFC Bank to fetch Rs 70. While triggers for the holding company will be limited, the next value creator will be re-rating of the banking entity," brokerage Edelweiss Securities said in a note.

While the makeover into a bank may be tedious, given RBI’s forbearance on infra lending, the company’s intrinsic profitability is expected to improve to clock RoE of 15 per cent backed by 1.9 per cent RoA by FY20.

"Given the strong management acumen, focus on technology and service delivery, the bank starting with a clean state with most of the hit already taken and trigger in terms of stock coming out of FII restriction (foreign holding of 22.28 per cent in bank), we expect IDFC Bank to command a multiple of 1.85 times translating to Rs 70 per share. We subscribe to the model that IDFC has adopted to metamorphosise into a universal bank and de-merger will lead to value creation as it embarks on its journey of creating a strong banking franchise," the brokerage said.

IDFC received the bank licence recently to access stable retail deposits and low-cost current and savings accounts and reduce reliance on wholesale funding.