Research Report


There is no doubt that financial Services and NBFC’s have been the leader of this Bull Market. IDFC is one of the newest bank and has recently completed its 1st Full year of Banking operations has done pretty well.

Let’s understand the larger trend that has emerged in the Private Banking space.

There have been different  strategy era’s in the private banking space in the  last 15 years which has resulted into wealth creation for Investors.

2003-2009 was about branch expansion and cross selling on services like credit card and auto loans which made the Emergence of HDFC Bank and ICICI Bank.

2009-2016 was about Kotak Bank, IndusInd Bank and Yes bank, where they emerged as the Fastest growing banks due to their focus on Niche Services and Digtal Foray.

2016 – 2020 the trend is clear i.e. its Digital Plus Rural. Till now banks have concentrated on 20% of population who has 60% of the countries net worth, however going forward the focus will be on the 80% population which doesn’t have access to credit facilities. With Digitalization, financial inclusion has become a possibility and the leaders in this pack could be IDFC Bank and RBL Bank.

10 Important Factors you need to know about IDFC Bank.

Factor #1 – About The Management Management – At Stallion Asset when we buy a Bank, We look at the Banker rather than bank only. Dr Rajiv lal is a veteran economist for last 30 years and has worked in various RBI Committees along with ex Governor Raghuram Raju, he has been a partner of popular private equity firm Warburg Pincus, head economist at Morgan Stanley clearly suggesting that he is a seasoned player who understands the game really well.

Factor #2 About the Bank – IDFC became a bank from an NBFC in October 2015, It offers wide variety of corporate and retail banking products and services to ~1.38 million customers. The Bank enjoys a presence of 74 Core Branches ; 47 ATM’s ; 8,600 points of presence covering 20 states, 150 districts, 19 major cities and almost 33,000 villages.

The bank is Divided into 3 Parts
1) Bharat Banking –  (Rural Side of the Bank) –This is the Microfinance unit of the company which started after it acquired Grama Vidiyal Micro Finance and has a unique outreach model to cater to local consumers. It has its branches built in difficult geographies and it has a unique outreach servicing model focused on financial inclusion. IDFC has acquired 12 Lakh customers in a small timeframe of 1 year.

2) Bharat Plus(Digital urban focused side of the Bank) It primarily caters to the needs of  mass affluent (Salaried class)  & affluent segment (self employed) business banking segment. The Bank has acquired 1.4 Lakh Customers since inception, out of which 20,000 are digitally acquired.

3) Wholesale – This is the legacy exposure of Infrastructure loans the Company had before it became a bank. The Percentage of Infrastructure loans have come down from 75% to 51% in FY2017 after 1.5 years of commencement of bank.

Factor #3 -Branch Light and Asset Light Business Model. –

IDFC bank is the bank of the future is focusing  more on technology and partnership and rely less on branches. Currently it has 74 Branches under its network likely to go up to 200 Branches by 2020 and corporate Business Correspondents will go up from 350 currently to 1000 by 2020. Further aggressive use of  micro ATM’s to 100,000 touch points from 8600 Currently & is expected to make en-roads in making banking simple and accessible, anytime and from anywhere along with Bank focus on serving the rural underserved communities & self employed. The average break-even of new branches is 4-6 months, the lowest in the industry.

Factor #4 – Impressive first Full Year of Operations –  There are only a few banks that become profitable in the first year of their operations since a lot of the cost are front loaded. Since IDFC Bank had a ready made loan book of Infrastructure loans, this helped it to be profitable in the first year Itself. The Bank recorded a net profit of Rs. 1,020 crore for FY17, delivering a 25% growth in net profit. Net interest income improved 20%, while the cost-to-income ratio was steady at 54%. Fee income has continued to increase at a healthy pace of 26%. The Balance Sheet grew y-o-y by 35% to 112160 Cr in Mar 2017.

Factor #5 -Growth Without Equity Dilution – Capital Adequacy Ratio stood strong at 18.9% with Tier I capital ratio at 18.5%. The bank does not plan to raise Tier I capital atleast for the next 2 years. The comfortable capital position provides healthy support for expanding loan book at a strong pace. The bank had a CASA of only 4% in FY2017 which the company has guided to Increase to 15%, which will decrease cost of funds.

Factor #6 – Selling out Legacy Loans – The bank sold its legacy infrastructure loans of Rs 2000 Cr net of provisions  in Q4FY17 to ARCs by way of security receipts. As a result of this sale, the Gross NPA levels reduced to Rs 1540 Cr (3%) in Q4FY17 from Rs 3590 Cr (7%) in Q3FY17. The net NPA levels stood at Rs 580 Cr (1.1%) in Q4FY17 as against Rs 1250 Cr (2.6%) in Q3FY17. Profitability wont be impacted in near future since management has provided adequate provisions for the stressed assets.

Factor #7 – Vision 2020 – The management has given aggressive guidance and is on the mission to transform the bank.

Factor#8 – Risks – The company is investing a lot of money in Microfinance segment and we at Stallion have been bearish on that part. We Believe that Loan Waiver is a New Normal and will continue happening for next two years until 2019 Elections Atleast.

The Company needs to show its best in digital platforms, a place where RBL is clearly winning in all fronts. Kotak has come out with 811, and has guided to acquire 1.5 crore customers.
IDFC doesn’t have the brand name yet, but with Mr Rajiv Lal at the forefront you can Expect the Unexpected. They have guided for atleast one acquisition which is very risky as valuations of banks ain’t cheap and the options available are South Indian Bank and Karnataka bank for them.

Factor #9 – Valuations- IDFC has a book value of 43/Share and Adjusted Book value of 41/Share i.e. it trades at 1.3x P/B . IDFC has a Market cap of 20,000 crore and did Earnings of 1020 crores i.e. trading at PE of 20 times. The valuations are reasonable but only if they can reach their 2020 target without screwing up in the acquisition, microfinance portfolio, they will get higher valuation. CASA growth is also very important which stands at 4% currently (Guided 15% in 2020) as cost of capital decreases with increase in CASA.

Factor #10 – Stallions View and Conclusion – At Stallion Asset We do understand that Rural plus Digital is wealth where wealth will be created. IDFC is reasonable at 1.3x Book especially after most legacy loan issues are now cleared but the story is not very clear as the bank is only 1 year old. We need to understand that there are many Small Finance banks (Rural Space) coming in as well as competition from payment banks (Digital Space). IDFC Bank are targeting 1 crore customers by 2020 which is a tall task but have an amazing management team. Most loans given out in microfinance division are subprime loans and are risky.

IDFC Bank is definitely not a 1 year story but a 5 year story and if it plays out, you can expect a 3-4-5x returns, and worse case you can lose 30% from these levels. We at Stallion like more clarity before investing especially because IDFC will be acquiring a bank, and expected volatility in microfinance division;things are not very clear now, probably we will have to pay a higher price for clarity, but we are comfortable to pay up a little more for certainty.

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Disclosure – Amit Jeswani and Family have no Positions in it. This is not a advise, please use this for education purpose only.

Rakesh Jhunjhunwala, the badshah of Dalal Street needs no Introduction and was seen on dalal street buying his Mentor Radhakrishna Damani’s Favorite stock TV18 Broadcast Limited. Rakesh Jhunjhunwala now owns 3.2% of the company whereas Damani owns 2.44%.

Tv18 Broadcast Enjoys Strong Parentage of Mukesh Ambani Owned Reliance Industry. The Following blog will explain you why exactly are these 3 legends backing this company.


About the Business TV18 Broadcast is India’s most diverse and leading Media and Entertainment conglomerates with interest in television, internet, films and entertainment.


Dont Forget to Read the Valuation Paragraph of TV18 for amazing ClarityTv18

TV18 Owns very popular Channels like CNBC, Colors, MTV, Sonic, Etc.


The Company pays Royalty for Using CNBC brand of about 30 Crores a Year whereas it has a joint venture for Colors and other MTV with Viacom18. Tv18 entered the Regional Market by buying out ETV for 2053 Crores.

Financials – 

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The company has been recovering in the last few years as investment in Colors starts to yield returns. Company has focused on very high Quality Content in colors in its Popular Shows Big Boss, Nagin Jalak Diklaja etc which has made colors the number 1 GEC channel in Q3 FY2017.


Investment Rational –

Subscription Revenues Set to Surge: The 2 Primary Revenue Generator are Advertisement & Subscription. Subscription Revenues are given by DTH players, however with the onset of digitalization especially in Tier III & IV cities , subscription revenues are all set to improve.


Advertising Fees Early Signs of Picking up: : TV18 was under tremendous pressure as advertising revenue had plummeted due to the economic slowdown and 12 minute ad cap regulation. Going ahead, advertising revenue is expected to pick up as economy improves. 


Grabbing Regional Channel Space : Do you know Sun TV has an operating margin of 70%? Sun Tv has been maintaining this margin level in the toughest of All times. Tv18 entered the growing regional space by acquiring 100% stake in ETV news, 50% stake in ETV GEC via Viacom JV and 24% stake in ETV Telugu spending a whopping 2052 Cr. However, the acquisition gives the TV18 a foothold into fast growing regional space. ETV acquisition has also led to better bargaining power with Multi system operators , DTH players and advertising companies and has enhanced its presence in Media & Entertainment Space. TV 18 has a significant presence in hindi speaking belt via ETV. It also has strong presence in Maharashtra, Karnataka, Rajasthan & Gujarat. Digitization and improved content to increase viewership share of regional channels from 27% in FY2012 to 43% in FY2020E

Sector Tailwinds – The size of India’s television industry was estimated at Rs 542 billion in 2015, which is expected to grow at a CAGR of 15% to touch  Rs 1,098 billion in 2020.


Strengthening & Transition of Colors Brand: GEC has undergone consolidation with STAR, ZEE and Colors exchanging top 3 places in the last few years. In Q3FY17 Colors continued its strong performance and was the #1 channel among its comparable peers.Colors has gained higher market share in urban area as per BARC ratings while still increasing its presence in rural areas.

Valuation – 


Lets understand the Listed Space to Understand the Valuation of TV18.


Zee Entertainment is clearly the Market Leader of the Pack with 1000 crores of profit and 47,600 Crores of Market Cap. Sun Tv a regional Player has PAT margins of 35.5% clearly having competitive advantage in South regional entertainment Market. TV18 has lagged behind in PAT due to a lot of investments in Colors to make it number 1 channel in GEC.

Tv18 6

Tv18 7

Typically Industry Opearting Margins are between 25-70%. TV18 has operating margin of 9.8% only but it has presence in both Regional play in ETV and GEC like colors. The margins of Tv18 have been poor because of continuous investments in new Channels. A diversified Market leader like TV18 can easily Fetch a PE multiple of  20-25x. The question that is what will be the earnings then if margins expands to 25-30%.

We conservatively expect that Operating Margins can expand to 25% in 3 years, Sales growth of 12% and PE multiple of 25. Using this approach, we believe that the company will be valued at at-least 16,000 Crores against about 6300 Today. Please note Zee Entertainment trades at 50+ PE and Colors is now better than Zee in viewership rating.


Tv18 is available at High margin of Safety, the bet is on the Business model rather than on the Financial. We are confident that the company will turnaround in coming years, but even if it doesn’t the odds of someone losing money is low. Media is a very high fixed cost business. The gestation period is extremely high. It will be extremely difficult for newer channels to be launched & start competing against the big guys for gaining viewership and market share. TV18 has demonstrated a successful business model over the years and across the segments; the company’s channels are among the top leaders in their particular segments. ETV channels via its subsidiary are near break-even and will start performing in coming years. Colors has become profitable but we believe margins can improve substantially in coming years. With Rakesh Jhunjhunwala and RadhaKrishna Damani Betting big in this stock, this looks to be a good pick.

Please note – From FY2017  Viacom18, Indiacast and IBN Lokmat have now been accounted following “Equity method”, as proportionate consolidation method is not allowed as per New Ind AS. We have made this report based on 2016 and prior annual report as quarterly data wasn’t sufficient.


Disclosure – Amit Jeswani and His family has no Positions in this Stock. Stallion Asset is a SEBI Registered Equity Advisory company. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision.

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