Dear Tribe Member,
Abundance – a beautiful word meaning: a very large quantity of something
I became a father just 6 months back, Since then one thing was always striking my mind that how can I create abundance for her when she turns 18 years of age. There were a lot of options like investing in mutual funds, however, me being an informed investor, it doesn’t suit me to invest in a mutual fund and I should hunt for a stock which suits my need of creating abundance or my daughter till the time she turns 18 years of age.
We all know that Compound interest is the 8th Wonder of the world which can create a fortune for people who understand it and implements it. Uninterrupted compounding can create a fortune. Along the same lines, I was able to find one such opportunity which can create abundance for my child. Abundance is the most valuable gift a father can give to a daughter.
It becomes very important to find out the business which has longevity if one has to gift its stock to their child. I was in search of such businesses, after thinking for long I found that banking businesses are one of the oldest businesses in the world. For Eg:- Barclays Bank was found in the 1690s and still, it’s operational, a 300 Yr + Bank, JP Morgan is a 100-year-old Bank. So the Banking business has one of the highest longevity.
Personally, I don’t like the banking business at all. The only reason being you borrow money from depositors and you lend it to people to make 3-5 % Margins and hope your money is recovered. In case something goes wrong with your loan clients and they turn into bad debts, you go bankrupt because of NPA. Still, there are banks that are too big to fail like For Eg- HDFC Bank which has created huge wealth for its early investors. HDFC Bank was trading at 4 Rs (Adjusted for splits and bonuses) in 1996 and recently before corona it was trading at 1200 a Staggering 300X Times in 24 Years. Even now after Corona, it’s at 800, Still a 200 Bagger.
So to create such enormous wealth one needs to own a business at the early stage of its journey. We cannot expect HDFC Bank now which is a big elephant to make moves like a baby elephant. So we want a company that is at its startup phase and its stock is beaten down which will grow as our child grows.
As said, Personally I don’t like the banking business at all. So My bet is not a bet on the bank, It’s a bet on the person running the Bank. Bet on the Jockey and not on the horse.
Let’s understand the Indian Banking Landscape
PSU Banks were having a 100% market share prior to 1993, Post opening up of the banking sector to private players, by 2013 PSU Bank market share fell from 100% to 78% in 2013 and the private sector grew from 0% to 22% by 2013. By today as we speak in 2020, private players have a market share of 29% of total banking assets. So the trend for private banking is upwards, while the trend for PSU Banks is on a downward spiral. My view is private and PSU both will own 50%-50% by end of the decade ending 2030. If one sees in the US, actually private players are more dominant in lending grabbing a big chunk of loan assets. So I see that happening that with the Indian scenario too. There is already value migration happening from PSU to Private from the past 1 decade, which is evident from the fact that PSU Banks are trading near bankruptcy valuations and Private Bank like Kotak are trading at 4 Times Book.
How much Private Banking can Grow in the Next 18 Years
- Nominal GDP= Real GDP+ Inflation
- Banking Growth Rate= 1.3* Nominal GDP( Private + Public)
- Private Sector Growth Rate= 5-10% Higher Growth Rate Compared to Sector Avg
- Nominal GDP Growth Possibility (2020-2040= 12%
- Banking Growth Rate(2020-2040)= 15-16%
- Private Sector Growth Rate(2020-2040)= 20-25%
Abundance Opportunity- IDFCFirst Bank CMP 18.85, Mcap 9500Cr
It’s a Bet on V Vaidyanathan’s capabilities to create world-class banks. It’s a bet on the Jockey(Mr. Vaidyanathan) and not on the horse(Bank). Let me share with you some pointers on why I say so. I have been tracking vaidya’s moves for the past 7 Years. Vaidyanathan was chairman and managing director of capital first which later got merged with IDFC Bank to create IDFCFirst Bank. Following is the video which will give you a glimpse of who vaidya is.
After the exit from ICICI Group, Running an NBFC was like dream come true. Well backed by Warburg Pincus their trust in Vaidya Played out well. Stock Price of Capital First moved from 100 Rs to around 850 Rs in just 5 Years from 2013 to 2018. Let us see in detail what magic he did to Future Capital Holdings which was renamed as capital first after management buyout by V Vaidyanathan.
Capital First Milestones
Capital First- Transformation from Wholesale NBFC to Retail
The secret of low NPA’s- Stringent Disbursal Process
Dream come true time for V Vaidyanathan- Becoming a Bank
https://www.youtube.com/watch?v=pNTLhzKC5wIJust See the Focus of Vaidya- Spot on. No Matter how many times Ira tried to distract. That is why I say it’s a bet on Jockey and Not on Horse. Rajiv at 23:20, Says Vaidya is his fund manager. smart decision by Rajiv Lal to step down and let vaidya to run the bank
https://www.youtube.com/watch?v=akAd6MWUxV0Dream Come True- Vaidya Speaking in Leaders of Tomorrow
Road Ahead the Merger- Plans Unveiled by V Vaidyanathan
Let’s Examine now what all he said in road ahead merger has he able to do it till now
IDFC First Bank- Transformation is in progress
IDFC First Bank is an Indian banking company with headquarters in Mumbai. The bank started operations on 1 October 2015. IDFC FIRST received a universal banking license from the Reserve Bank of India (RBI) in July 2015. On 6 November 2015, IDFC Bank was listed on BSE and NSE.
IDFC FIRST Bank provides a range of financial solutions to individuals, small businesses, and corporates. The Bank offers savings and current accounts, NRI accounts, salary accounts, Demat accounts, fixed and recurring deposits, home and personal loans, small business loans, forex products, payment solutions, and wealth management services. IDFC FIRST Bank has a nationwide presence and operates in the Retail Banking, Wholesale Banking, and other banking segments. 260 branches, 140 ATMs, and 454 rural business correspondent centers across the country, net banking, mobile banking, and 24/7 toll-free Banker-on-Call service.
The trend of Retail Loan Book
Declining Wholesale Loanbook
Growing CASA% as a percentage of total deposits
Loan Assets Breakup
NIM’s Moving North
V Vaidyanathan addresses shareholders in First AGM
Vaidyanathan talks after Q4FY20 Results
Possible Risks/ Negatives to Investment Argument
- Inability to Grow CASA as per Plan (Low Probability Event)
- Inability to reduce exposure to Wholesale book (Low Probability Event)
- IDFCFirst Bank is a bet on the jockey and not the horse for me, So Vaidyanathan is the key man of focus, If he leaves the organization because of any reasons that could be negative for the stocks(Which I don’t see him getting deviated from his dream to create a world-class bank)
- Retail Delinquicies because of coronavirus led meltdown. (Low Risk Currently because IDFCFirst bank recently raised 2000Cr for such firefighting.
Recently V Vaidyanathan sold some of his holdings in IDFCFirst, That was more of a deleveraging for his personal investment where margin call was hit because of Covid-19 Led Meltdown in stock. Clarification below:-
IDFCfirst Bank Raises 2000Cr as FireFighting for COVID19 led Delinquencies if any.
https://www.youtube.com/watch?v=UdErcPQnLBkIt’s great news if Vaidya is able to raise funds even in this COVID 19 Situation.
MY TAKE
How IDFCFirst Bank can become a 100 Bagger by the time my daughter turns 18
| HDFC BANK | AXIS BANK | KOTAK BANK | IDFCFIRST 2020 | IDFCFIRST 2030 | IDFCFIRST 2038 | ||||
| MARKET CAP | 650000 | 200000 | 300000 | 10000 | 306491 | 1317855 | |||
| LOAN ASSETS | 868000 | 506000 | 243000 | 99000 | 612982 | 2635710 | |||
| CASA RATIO | 42% | 40% | 56% | 24.06% | 50% | 50% | |||
| NIM’S | 4.30% | 3.40% | 4.61% | 3.86% | 4.50% | 4.50% | |||
| ROA | 2.10% | 0.91% | 2.35% | 0.15% | 2.20% | 2.20% | |||
| NPA | 1.38% | 2.09% | 1.78% | 2.10% | 1.40% | 1.40% | |||
| MCAP/LOAN | 0.75 | 0.40 | 1.2 | 0.10 | |||||
| Upside 30X by 2030 | Upside 130X by 2038 | ||||||||
HDFC bank Trades at 0.75 Times its Loan Asset, Kotak is trading at 1.2 Times, IDFCFirst Bank is 0.10 Times, so its a highly undervalued bank and with Vaidyanathan’s capabilities of creating a world-class bank in coming future, by 2030 this bank can a loan book of 6lakh Crore from a current Loan Book of 1Lakh Cr this bank can fetch a decent valuation of 0.5 times loan book at 4% NIM’s and 2.2% Return on Assets, that’s a market cap of 3lakh Cr, in coming future it can trade at a Mcap of 3lakh Cr, that’s 30X of the current Mcap of 10000Cr. By 2038 on the same lines of 26 Lakh cr assets it can trade at 13Lakh Cr Mcap, which will be whooping 130 Times by the time my child turns 18.
It’s just a matter of time, IDFCFirst is a High Potential and Obvious Fortune Creator for my child. This is a very young company with all the right ingredients for growth; Investing in this would be like investing in a small sapling. And if the right environment, necessary support(water/manure), protection is provided; this can grow up to be a strong and profitable tree.
Important Note: Potential fortune creators are those stocks that have the potential to give 1000%+ profits. Obviously, such returns take time. Probably 5– 10 years or more. Short-term volatility is the reality of the stock market and that will always happen. Short-term movements(upside and downside) are impossible to predict. Only invest funds that you will not need for the next 5 – 10 years. As long as you buy a stock for the right reason and are convinced about the future prospects of the company, there is no need to worry if the share price goes down and stays down for a period of time after you buy; provided you have followed the cardinal stock market mantra BUY LOW
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