IDFC delivered a robust 26% y-o-y growth in 1QFY10 net profits, ahead of our estimates.
A key positive take-away from the result was that both interest and non-interest income grew strongly, despite weak loan growth.
Net interest income grew 12% y-o-y on the back of wider spreads, as wholesale funding costs collapsed.
Similarly, non-interest income rose 32%YoY, primarily driven by 4x rise in asset management fees, but also sequential improvements in other fee streams. After 35% upgrade to our FY10 net profit estimate, we now estimate the ROE will reach 13.8% in FY10.
While growth outlook for both infrastructure and capital-market-related businesses has significantly improved, we are struggling to justify the company’s valuations, which have reached 2.7x FY10ii book; as such, we expect the stock to perform in line with the market.
We maintain a REDUCE recommendation on the stock.