BS Bank Aspirex performs in line with BSE Bankex

The BS Bank Aspirex, a Business Standard index covering 16 listed companies that had applied for banking licences, gained just 1.3 per cent since July 1, 2013, the last date for submitting applications for bank licences.

During this period, the S&P BSE Bankex also saw the same gains.

The BS Bank Aspirex is calculated on a full market capitalisation methodology, the base period for which is December 31, 2012. The base value of the index has been set at 1,000, and the base capital at Rs 121,586 crore.

With weightage of about 19 per cent, IDFC is the most influential stock in this pack, followed by Aditya Birla Nuvo and LIC Housing Finance (about 12 per cent each), L&T Finance Holdings (11.8 per cent) and Bajaj Finance (7.5 per cent). Weightage in the Aspirex is calculated by the total market value of a company.

IDFC, one of the two companies that secured a bank licence and the only listed one to do so, has lost 1.4 per cent since July 1, 2013. Following the announcement the company had been granted a licence, which came after market hours on Wednesday, the stock soared three on Thursday, before slipping to Rs 124 levels (down about three per cent on BSE) at close of trade, on profit booking.

Investing strategy
Analysts say securing a bank licence is positive for IDFC, considering this will help the company diversify from a single-product wholesale financing company to a consumer-centric bank. “We estimate IDFC’s RoAs (return on assets), after becoming a bank, will fall from 290 basis points to 150 basis points after the SLR (statutory liquidity ratio), CRR (cash reserve ratio) and PSL (priority sector lending) requirements and further to 120 basis points, including higher costs. The stock is being quoted at nine times the one-year forward-rolling price-to earnings ratio and 1.3 times the one-year forward-rolling price-to-book value adjusted. At this price, the valuations are not very compelling,” said Kashyap Jhaveri, an analyst tracking the sector with Emkay Global.

In a note, Santanu Chakrabarti and Ujjwal Somani of ICICI Securities, say, “Earlier, we had identified IDFC as the biggest beneficiary among the evaluated NBFC (non-banking financial company) applicants, in terms of an increase in steady-state return on equity (from 15 per cent now to 18 per cent) and lowered cost of equity. Dividend tax complications around a three-tier holding structure and a high dilution requirement for non-operative financial holding company ownership (from 100 per cent to 40 per cent in three years) will be the hurdles to value realisation.”

“However, based on a steady state multiple of 1.5x for the bank, we set a target price of Rs 164 (earlier Rs 138) for IDFC (Rs 22 added according to the earlier indication, and Rs 4 from the quarterly roll). Valuations, at 1.15 times the FY15E core book value per share, are attractive and we maintain ‘Buy’. The key risk is retail infrastructure overinvestment,” they add.