Anticipation of golden days drives IDBI 51% in a month.

Quarter and half-yearly results amidst divestment plans by GOI and LIC creating a buzz for IDBI Bank.

Financial Results of the Bank for the quarter and half year ended September 30, 2021, to be declared tomorrow (21/10/2021).

FY 2021 marked the rejuvenation of the lender, who came out of the Prompt Corrective Action “PCA” imposed by RBI in 2017 on account of high non-performing assets and a negative return on assets.

For the first time in five years (2016-2020), the bank reported a Net Profit of Rs 1359 crore after a string of net losses. The bank turned around on all parameters largely due to a more efficient product mix with a tilt towards Retail Advances (62%) against corporate advances (38%) and high recoveries.

The lender has shown its resilience to improved efficiencies, signalling that the worst is over and is well behind.

The net NPA percentage for the last reported quarter (ended on 30th June 2021) was at 1.67 as compared to 1.97 (for quarter and year ended on 31st Mar 2021). Capital Adequacy Ratio percentage (Basel III) also showed improvement at 16.23 against 15.59 for the periods under review. Return on Assets per cent wise (Annualised) stood at 0.83 against 0.46 for the above periods respectively.

With the economy reviving, improved operating environment and declining credit costs are expected to drive the Q2 performance of the bank with improved profitability and capital.

The stock has seen a jump of 51.56% in the last one month from the levels of Rs 36.95 apiece to Rs 56.

The bull rally in the bank was largely on account of divestment plans of GOI and LIC  in expectations of value unlocking for the shareholders.

Jointly Government of India and Life Insurance Corporation of India holds 94.71% bifurcated into GOI (45.48%) and LIC (47.24%) respectively.

At the current market capitalization of the bank, the divestment could result in the realization of Rs 28000 crore for the Government of India for selling its entire stake of 45.48% in the bank.

Life Insurance Corporation of India (LIC), which owns 49.24%, will also offload its stake to transfer the management control to the new buyer. The extent of stake dilution by both the government and the insurer will be decided in consultation with the RBI. The transaction adviser( KPMG India) is expected to  finalize the deal structure of the sale as the government targets floating the Expression of Interest ( EoI ) in December 2021. The potential buyer will have to infuse funds, bring in new technology, and implement best management practices for the growth of IDBI Bank. It will have to generate more business for the lender without being dependent on LIC or the government for funds.

Key takeaways

1. The improved performance by IDBI is driven by the lifting of PCA which gives impetus to its expansion plans.

2. Forthcoming divestment by GOV & LIC leading to value unlocking and opportunity to shift the bad assets to NARCL and vetting potential buyers with a cleaner balance sheet at a higher valuation.

3. The transfer of management by LIC may lead the bank to newer heights in terms of performance and growth.

All these factors do vouch for the further potential for upside in the stock which the near future may unfold.

The stock of IDBI Bank was trading at Rs 55.90 at 12.43 pm today.