IDBI Bank’s balance sheet surged 26% in FY08, much better than the 17% increase in FY07 and the 9% rise in FY06. Advances rose 32% in FY08, outpacing the increase witnessed in FY07 (19%) and FY06 (16%).
Though net interest margin fell 12 bps essentially on account of the fast-growing deposits, we expect it to increase as the Bank is planning to raise capital in FY09.
Geographical expansion will play a key role in future growth. IDBI is aggressively expanding into newer geographies. The merger with United Western Bank has increased IDBI’s number of branches by more than 100.
The Bank is also focusing on diversification. IDBI has recently launched a life insurance company and is planning a foray into asset management and venture capital businesses. It has started offering online trading and demat services to its customers.
We have valued IDBI (standalone) by using the Gordon-growth Model. We arrived at a target P/ABV of 0.83x, thus valuing the standalone Bank at Rs85 per share. IDBI Home and IDBI Capital, have collectively been valued at Rs. 8 per share.
Equity investments in ARCIL, NSE, SIDBI, IDFC and other companies have been valued at about Rs33 per share. Our final SOTP valuation results in a target price of Rs126. We maintain BUY rating on the stock.