IDLC FINANCE LIMITED DSE: IDLC BLOOMBERG: IDLC:BD
Company Overview Company Fundamentals Market Cap (BDT mn) 20,172.2 IDLC Finance Limited was incorporated on May 23, 1985 and commenced its operation on February 22, 1986. The Firm Market weight 0.6% initially started with Lease Financing as core product. Later, it No. of Share Outstanding (in mn) 377.1 has changed its focus to multi-product with almost equal Free-float (Public + Foreign + Inst.) 43.3% attention in Corporate, Retail and SME sectors. The Company is Paid-up Capital (BDT mn) 3,770.5 working with 30 branches in the major cities of the country. 3 Months Average Turnover (BDT mn) 12.7 The Company has three wholly owned subsidiary companies – IDLC Securities Ltd, IDLC Investment Ltd & IDLC Asset 3 Months Return -9.6% Management Ltd. The main activities of the companies are to Current Price (BDT) 53.5 carry on the business of stock brokerage, merchant banking 52-week price range (BDT) 51.6 - 80.0 operations and asset management activities to cater the Sector Forward P/E 19.3 diverse needs of the investors. 2019 Composition of Consolidated Operating Income: 2016 2017 2018 (HY Ann) 2019 (BDT mn) 2015 2016 2017 2018 Financial Information (BDT mn): (6M) Operating Income 5,167 6,280 5,824 5,707 Interest Income 8,251 8,360 8,893 11,163 6385 Operating Profit 3,205 3,945 3,524 3,352 Interest Expense 4,833 4,622 4,898 6,940 4031 1,780 2,277 2,171 2,103 Net Interest Income 3,418 3,737 3,995 4,223 2354 Profit After Tax Net Interest Margin 6.7% 6.4% 6.0% 5.4% 5.5% Equity 8,938 12,597 13,637 13,369 Operating Income 4,588 5,167 6,280 5,824 2853 Deposit 49,324 62,092 72,713 71,790 Growth* 25.4% 12.6% 21.6% -7.3% -1.6% Loans and Advances 62,265 71,499 83,934 87,306 As % of Operating Income Total Asset 79,359 95,687 109,166 117,425 Net interest income 74.5% 72.3% 63.6% 72.5% 82.5% Margin*: Investment income 8.1% 9.2% 17.2% 9.6% 3.1% Operating Profit 62.0% 62.8% 60.5% 58.7% Commission and 7.8% 8.5% 12.0% 10.3% 7.2% brokerage Net Profit 34.5% 36.3% 37.3% 36.8% Other op. income 9.6% 9.9% 7.1% 7.6% 7.2% PAT to Net Int Inc 47.6% 57.0% 51.4% 44.7% Growth* Growth: Net interest income 18% 9% 7% 6% 16.7% Loans & Advances 12.8% 14.8% 17.4% 4.0% Investment income 669% 28% 127% -48% -78.7% Deposits 3.6% 25.9% 17.1% -1.3% Commission and Equity 14.8% 40.9% 8.3% -2.0% -1% 24% 71% -21% -21.2% brokerage Operating Income 12.6% 21.6% -7.3% -2.0% Other op. income 22% 16% -12% -1% -0.8% Net Profit 22.0% 27.9% -4.7% -3.1%
*Net Interest Margin (approx.): Net interest income/last 2-year average of loans & advances Financial Indicators: *Growth for 2019 is calculated for 6 months over the same period of the last year.
Credit/Deposit 126% 115% 115% 122% Historical Loans & Advances and Term Deposits: Asset/Equity 8.9 7.6 8.0 8.8 2019 5 Year Capital Adequacy 13.3% 15.3% 15.5% 14.4% BDT mn 2016 2017 2018 (6M) CAGR NPLRatio 3.0% 2.8% 2.2% 2.6% Loans & Advances 62,265 71,499 83,934 87,306 -- Cost to Income 38.0% 37.2% 39.5% 41.3% % of Total Asset 79% 75% 77% 74% -- Profitability: Growth (YoY) 13% 15% 17% 4%* 15.4% ROA 2.3% 2.9% 2.1% 1.9% Term Deposits 47,475 59,854 70,258 69,306 -- 21.3% 21.1% 16.6% 15.6% % of Total Asset 60% 63% 64% 59% -- ROE Growth (YoY) 3% 26% 17% -1%* 19.3% Dividend History: Credit-Deposit 131% 119% 119% 126% -- Dividend % (C/B) 30/- 30/- 35/- -- Ratio Dividend Yield 4.4% 4.1% 5.1% -- *Growth for 2019 is calculated for 6 months over December 2018 Dividend Payout 63.5% 49.7% 60.8% -- Shareholding Structure: Valuation: The Firm enlisted in with DSE on March 20, 1993 and CSE on Price/Earnings 11.3 8.9 9.3 9.6 November 25, 1996: Price/BV 2.3 1.6 1.5 1.5 As on Sponsor Govt. Instt. Foreign Public EPS (BDT) 4.7 6.0 5.8 5.6 31-Jul-19 56.66% 0.00% 19.33% 13.01% 11.00% NAVPS (BDT) 23.7 33.4 36.2 35.5
31-Dec-18 56.66% 0.00% 17.54% 13.82% 11.98% *Operating profit Margin: Operating profit/Operating Income 31-Dec-17 56.66% 0.00% 15.99% 11.52% 15.83% *Net profit Margin: Net profit/Operating Income 31-Dec-16 59.66% 0.00% 20.30% 0.00% 20.04% *PAT to Net Int Inc: Net Profit/Net Interest Income
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Industry Overview respectively while the ratios were 1.1 percent and 8.3 percent at December 2017. As financial intermediaries, Non-Bank Financial Institution (NBFI) plays a vital role in the development of the country. The Asset quality: The ratio of non-performing loans/lease (NPL) to main activities of NBFIs are consisted of syndicated financing, total loans/lease is one of the key indicators to identify bridge financing, lease financing, securitization instruments, problems with asset quality in the loan portfolio. Total classified private placement of equity etc. loan of the sector stood at BDT 54.6 bn as of December 2018 which was 7.9% of total industry loan. Number of NBFIs: According to latest Bangladesh Bank (BB) statistics, out of 34 NBFIs, 3 are government owned, 12 are Impact of Liquidity crisis: The performance of NBFI is greatly joint ventures with foreign participation, and the rest 19 are influenced by the banking sector of the country. The banking locally private owned companies. Meanwhile, the branch sector has struggled in 2018 due to rising non-performing loans network increased to 271 as of December 2018. So far 23 NBFIs against increased loan portfolio amid lower deposit growth. For are listed in the capital market. NBFIs have significant facing increasingly more demand for loans from the private contribution to the country’s Capital Market through its sector, a few banks had exceeded the allowable loan-deposit separate subsidiaries – Merchant Banks and Brokerage houses. ratio (LDR) of 85%. As a result central bank has advised the Few NBFIs are specialized in Real Estate sector financing. banks to reduce the LDR to 83.5% by September 2019. The reduction of LDR has abridged the banking sector’s ability of Growth of the Sector: Major sources of funds of NBFIs are term disbursing loan. For tackling the situation banks and financial deposits, credit facilities from banks and other NBFIs, the call institutions have tried to collect more funds by increasing the money market, as well as bonds and securitizations. The assets rate of interest in deposit. Eventually, the increased deposit of the sector have increased by 13.43% to BDT 957.2 bn, rate squeezes the interest margin of the NBFIs. liabilities by 14.79% to BDT 836.9 bn and equity by 4.70% to BDT 120.2 bn as of December 2018. Investment Positives Loans and lease is the major component of the NBFI’s asset base consists of approximately 75.48% of total assets as of . IDLC Finance Ltd. has established itself as a market leader December 2018. In December 2018 aggregate loan and lease and is recognized as a reliable brand in the country’s was BDT 722.5 bn grew by 17.56% over December 2017. Over financial sector. last 5 year, Loan portfolio of the sector grew at a CAGR . In December 2018, the balance-sheet size of the (Compound Annual Growth Rate) of 18.05%. Company stood at BDT 109.17 bn stating a 5-year CAGR (Compound Annual Growth Rate) of 16.7%. It has grown On the other hand, Deposit accounts for around 57.61% of by 7.6% in the first half of 2019 over December 2018. total liabilities as of December 2018. Aggregate deposit of NBFI . As of June 2019, the Company holds a Loan Portfolio of sector was BDT 482.1 bn as of December 2018 increased by BDT 87.31 bn, which is the highest in terms of size among 3.21% over the same period of last year. 5-year CAGR of the all the sector players, grew by 4.0% over December 2018. sector deposit was 19.53%. In 2018, the lending portfolio was BDT 83.93 bn grew by Sector wise composition of NBFIs' investment at the end of 17.39% mainly on the growth of term finance and home December 2018 was as follows: loan. Loan portfolio of NBFI (Non-Bank Financial Investment Pattern of NBFIs as of December 2018 Institution) industry grew at a 5-year CAGR (Compound Annual Growth Rate) of 18.1% and IDLC’s CAGR was 15.4% Trade and Margin Loan over the same period. A comparison has shown in the 2% Commerce 15% following table: Merchant Others Banking 12% Year Industry 4% IDLC Loan Market Industry IDLC's (BDT Loan Portfolio Share Growth Growth Housing billion) Portfolio 19% 2014 371.0 47.1 12.7% 17.7% 15.0% Industry 2015 448.5 55.2 12.3% 20.9% 17.2% Agriculture 45% 2016 534.2 62.3 11.7% 19.1% 12.8% 3% 2017 616.6 71.5 11.6% 15.4% 14.8% Source: Bangladesh Bank 2018 722.5 83.9 11.6% 17.2% 17.3% Profitability: The overall profitability of the FIs as of December Source: Bangladesh Bank & IDLC Annual Reports
2018 was lower than that of 2017. FIs’ profit before taxes . IDLC’s three major business constituents comprises of slightly decreased by 5.2 percent in CY18 from the previous SME Financing, Corporate Financing and Consumer year, attributable to 62.2 percent decline in investment income, Financing. As of December 2018, Loan Diversification was 2.2 percent decrease in net interest income, 34.8 percent ensured as SME sector got 41% of loan portfolio followed increase in other operating income and 30.8 percent increase in by real estate finance (30%) and industrial loan (24%). The income from commission and brokerage. At the same time, Company is focusing its business growth driven by SME operating expenses increased by 6.8 percent and loan loss and consumer division. The SME division has increased its provisions increased by 39.5 percent and tax provisions focus to serve the micro enterprises and has invested decreased by 2.6 percent compared to those of the previous heavily on technological development to cater to the year. micro enterprises. The Company is diversifying the ROA (Return on Asset) and ROE (Return on Equity) measures customer base from capital city to remote areas, the profitability relative to asset and equity. As of December targeting segments with smaller ticket financing needs. 2018, ROA and the ROE was 0.9 percent and 7.4 percent
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Portfolio Composition: 2018 Real estate regarding issuance of Non-Convertible Zero Coupon Car loan Bonds amounting to BDT 2,550 Million through private placement. Denomination of the bond is BDT 1.00 million Personal loan 24% 30% each and the tenure is up to 5 years within the range of Loan against deposits 7.00% p.a. 0% SME . IDLC Asset Management Limited (IDLC AML) launched its 2% 2% Special program loan 0% second open end mutual fund, namely “IDLC Growth 1% Staff loan Fund” with an initial fund size of BDT 500 mn in 2018. 41% Industrial loans Total Asset under Management of the two mutual funds
Source: IDLC Annual Report 2018 stood at BDT 1,100 mn as of December 2018. In 2018, IDLC AML launched IDLC Systematic Investment Plan (IDLC SIP), . In the first half of 2019, SME, corporate and consumer a pioneering retail product that allows investors to make loan portfolio grew by 3.93%, -1.12% & 8.36% over small ticket investments at regular intervals in IDLC Mutual December 2018. (Source: Earnings disclosure: Q2, 2019). Funds.
Consumer Corporate . The Company has assigned surveillance credit rating as SME Division Division "AAA" in the long term and "ST-1" in the short term along Asset Portfolio (BDT mn) - 2018 34,687 27,822 19,900 with a Stable outlook by Emerging Credit Rating Limited % of Total Asset Portfolio 42.09% 34.00% 24.15% (ECRL) Portfolio growth over 2017 12.43% 15.20% 37.88% 5 Year CAGR 19.33% 16.53% 14.27% Investment Negatives
Source: IDLC Annual Report 2018 . Consolidated operating income and net profit of the . As of December 2018, the Company obtained around Company has decreased by 7.26% & 4.66% respectively in 85% of financing from Deposits which is less costly means 2018 over the same period of last year despite 5.71% of financing compared to the bank’s borrowing. Deposit increase in net interest income, the core component of portfolio of the Company stood at BDT 72.71 bn as of revenue. December 2018 grew by 17.10% over last year. - Net interest income growth was driven by the growth Meanwhile, the deposit declined by 1.3% in the first half in loan portfolio by 17.39% by acquisition of new of 2019 over December 2018. As of June 2019, advance- clients, volume of business and expansion of products deposit ratio was 80.2% against the regulatory limit of and services. 95.0%. (Source: Earnings disclosure: Q2, 2019). - Around 20% of the consolidated operating income of - There are 3 sources for Term Deposits: Corporate, the Company comes from the capital market Individuals and Banks. In 2018, deposit growth rates operation through its subsidiaries which are highly from Institutions (excl. Banks) and Individuals have volatile in nature. Investment and Commission & been 28% and 24% respectively, while deposits with Brokerage Income witnessed de-growth of 48.33% & other Banks remained at the same level. 20.92% respectively subsequent to the slump in - The Company is focusing on maintaining the renewal equity market return in 2018. Capital market rates on deposits. In fact, above 75% of the deposits experienced a decline in the benchmark index, DSEX, are renewed upon maturity. This, in effect, means of the Dhaka Stock Exchange in 2018 by 38% over that the average maturity of deposits is much longer 2017 where daily average turnover has slumped by than their quoted tenors. 37%. However, proprietary investments in - To strengthen the deposit base, the Company fundamentally strong shares are expected to launched IDLC Priority Program which caters to serve generate value in the coming periods. High Net Worth deposit client. Composition of Consolidated Operating Income - The Company launched new deposit product – Particulars 2014 2015 2016 2017 2018 Interest First Deposit. The unique selling proposition IDLC Finance 93% 97% 96% 77% 81% of the product is the immediate realization of interest IDLC Securities 5% 5% 5% 13% 13% at the time of opening of account. As of December IDLC Investment 2% -2% -2% 9% 4% 2018, within 2 months of its launch, amount of IDLC AMC 0% 0% 0% 2% 2%
deposit booked through this product reached BDT Source: IDLC Annual Reports
160 million. - There has also been a fall in Processing Fees and - The Company is focusing on a diversified pool of Service Charges despite increased disbursement, deposit basket to reduce risk of over-dependency on essentially due to a decline in fee rates across the a specific group of depositors. industry, following directives issued by the regulators. . The Company is continuously giving emphasis to maintain Nonetheless, growth in disbursement volumes is the quality of the total loan portfolio. Non-performing expected to restrict further deterioration in fee loan (NPL) of the Company has decreased to 2.20% as of income. December 2018 from 2.77% in December 2017 which is - Operating expenses declined by 1.53% in 2018 from one of the lowest in the industry. As of June 2019, NPL the previous year. ratio rose to 2.58% due to the slowdown of business - In 2018, provision for leases and loan increased by environment. As of December 2018, industry NPL was 70.53% over last year. 7.9%. . Interest rates on bank deposit have started to go up . In April 2019, Bangladesh Securities and Exchange gradually from the beginning of 2018 after breaking the Commission (BSEC) has given consent to the Company downward trend of last three years amid significant drop 3 August 22, 2019
in excess liquidity in the market. This upward trend had a Particulars (BDT mn) Dec ‘18 Mar ‘19 Jun ‘19 negative impact on net interest margin depending on the Loans and advances 83,934 87,296 87,306 gap of rate sensitive assets and liabilities. To cope with the Addition over December 2018 -- 3,362 3,372 liquidity issues, the Company started to provide higher Deposits 70,258 71,087 69,306 Addition over December 2018 -- 829 -952
interest rate on the deposit products which in turn
increased the cost of fund that put pressure on the net . Loan portfolio of the Company increased by 4.0% in the interest margin. first half of 2019 driven by the growth in SME and consumer loan over the same period of last year. Particulars 2015 2016 2017 2018 2019 (6M) However, deposit portfolio posted a negative growth of Net Interest Margin* 6.7% 6.4% 6.0% 5.4% 5.5% 1.4% during the period. *Net Interest Margin (approx.): Net interest income/last 2-year average of loans . Net interest income has registered 17% growth during the & advances; reported period than that of last year due to the growth in . Private sector credit growth is in declining trend since loan portfolio. Net interest income contributed 82.5% to February 2018. In June 2019, it dropped to 11.29% which the total operating income during the period which was was 18.5% in February 2018. Meanwhile, the recent 69.6% over the same period of last year. monetary policy for the FY 2019-20 has lowered the . Consolidated operating income of the Company has private sector credit growth target to 14.8% which was decreased by 1.6% in the first half of 2019 over the same 16.5% in last fiscal year. The liquidity crisis in the financial period of last year despite 16.7% increase in net interest sector along with reluctance of the entrepreneurs in income due to the decrease in investment income and making further investment may cause to the lower commission & brokerage income by 78.7% & 21.2% growth of lending portfolio of the Company. respectively. Investment income decreased due to lower . In the first half of 2019, deposit portfolio of the Company capital gain from investment in shares during the period has posted de-growth of 1.3% over December 2018. than that of last year. Commission and brokerage income Deposit comprises of 76.67% of its total financing as of decreased due to the sluggish capital market behavior in June 2019 which was 85.33% in December 2018. 2019. Borrowing from other banks and financial institutions has . Operating expenses increased by 4.7% during the period increased by 74.8% in the first half of 2019 over December than that of last year which led to decrease in operating 2018 which stood at 23.33% of total financing which was profit by 5.5%. 14.66% in 2018. . Net profit showed de-growth of 5.4% in the first half of . The Company’s business faces competition from 2019 mainly due to the decrease in investment income commercial banks in terms of sources of fund. Absence of and commission and brokerage income over the same CASA (Current Account – Savings Account) deposits period of last year. increases bank dependency and reduces bargain power to Profit contribution from different entities bring public deposits resulting high cost of fund and low spread. Net Profit (BDT mn) Q2 – 2019 Q2 – 2018 Growth . The Company is also facing tough competition in IDLC Finance Limited 919 799 15.1% consumer loan & SME financing from banks & other non- IDLC Securities Limited 58 187 -69% bank financial institutions. To cope up from this, IDLC is IDLC Investments Limited 80 108 -26% improving its products mix and service efficiency to attract IDLC Asset Management Ltd. -6 18 -134% Consolidated Net Profit 1,051 1,112 -5%
and retain the customers.
Source: Earnings disclosure: Q2, 2019
Latest Financials Update – Q2 2019 Historical Earnings Per Share and Growth Restated Earnings Per Share (BDT) Growth Jan-Jun Jan-Jun Apr-Jun Apr-Jun Particulars (BDT mn) 8.0 100% 2019 2018 2019 2018 6.0 5.8 5.6 Interest Income 6,385 5,208 3,348 2,816 6.0 4.7 80% 3.9 3.3 60% Interest Expense 4,031 3,191 2,076 1,768 4.0
Net Interest Income 2,354 2,017 1,273 1,048 40% EPS EPS (BDT)
2.0 Growth (%) Growth 16.7% -- 21.4% -- 20% - Investment Income 88 414 18 149 0% Growth -78.7% -- -88.1% -- (2.0) -20% Commission, Exchange 206 262 77 153 2014 2015 2016 2017 2018 2019 (6M Ann) and Brokerage Income Growth -21.2% -- -49.9% -- Other Operating income 205 206 97 90 Historical Price (BDT) & Volume ('000) Movement
Growth -0.8% -- 7.8% -- Volume ('000) Closing Price (BDT)
Total Operating Income 2,853 2,898 1,464 1,441 100 4,000 Growth -1.6% -- 1.6% -- 80 3,000 Operating Profit 1,676 1,774 869 880 60 2,000
Growth -5.5% -- -1.2% -- Volume ('000) 40 1,000 Net Profit 1,051 1,112 493 561 Closing Price (BDT) Growth -5.4% -- -12.1% -- 20 -
Aug-17 Feb-18 Aug-18 Feb-19 Aug-19
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Movement of DSEX & IDLC Index (Rebased to 100) Concluding Remark DSEX IDLC 120 IDLC Finance Ltd. is playing a leading role in the country’s non- banking financial sector. The firm is also well-known for its 100 strong ethical practices as well as exemplary corporate governance and statutory compliance. The Company maintains 80 higher Capital Adequacy Ratio (15.47% as of December 2018) 60 than required (10.0%). Regardless of various external Aug-17 Feb-18 Aug-18 Feb-19 Aug-19 challenges, the Company’s overall business attained a dynamic
Pricing* Based on Relative Valuation: growth over the periods and is expected to grow beyond the industry in the coming years as the Company is focusing more Multiple Value (BDT) on SME financing and retail business. Market Forward P/E 14.3 79.9 Market P/B 1.7 61.7 Source: Annual Reports, DSE Website, the Financial Express, the Daily Star, ILSL Research, IDLC
* Based on latest EPS (June 2019) website.
ILSL Research Team:
Name Designation Disclaimer: This document has been prepared by International Leasing Securities Rezwana Nasreen Head of Research Limited (ILSL) for information only of its clients on the basis of the publicly available information in the market and own research. This document has been Towhidul Islam Sr. Research Analyst prepared for information purpose only and does not solicit any action based on the Kishan Saha Executive - Research material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to any security. Neither ILSL nor any of its directors, To access research through Bloomberg use
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