U.S. Markets open in 8 hrs 15 mins

Edited Transcript of IDFC.NSE earnings conference call or presentation 16-Aug-19 10:30am GMT

Q1 2020 IDFC Ltd Earnings Call

Chennai Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of IDFC Ltd earnings conference call or presentation Friday, August 16, 2019 at 10:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Bimal Giri

IDFC Limited - Senior Director of Strategy, Corporate Planning and IR

* Sunil Kakar

IDFC Limited - MD & CEO

================================================================================

Conference Call Participants

================================================================================

* Anish Jobalia

Banyan Capital Advisors Private Limited - Senior Research Analyst

* Ankit Singh;Indus Valley Partners;Analyst

* Rikesh Parikh;Barclays;Analyst

* Sarvesh Gupta

Maximal Capital - Founder

* Sneha Ganatra

Subhkam Ventures - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the IDFC Limited Q1 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Bimal Giri of IDFC Limited. Thank you. And over to you, sir.

--------------------------------------------------------------------------------

Bimal Giri, IDFC Limited - Senior Director of Strategy, Corporate Planning and IR [2]

--------------------------------------------------------------------------------

Good evening, everyone. I welcome you to this conference call organized to discuss our financial results for Q1 Fiscal '20. I have with me Sunil Kakar, Bipin Gemani and Mahendra Shah.

I would like to state that some of the statements made in today's discussions may be forward-looking in nature, and may involve risks and uncertainties. Documents have been mailed to all of you. These documents have also been posted on our corporate website.

I now invite Sunil to provide key highlights and the way forward.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [3]

--------------------------------------------------------------------------------

Thank you. Thank you, Bimal, and thank you, everybody for joining the call. And we were a bit late in posting our presentation, yesterday being a holiday, but having said that, I'll walk you through with some of the key aspects of the presentation, and then we'll spend more time on Q&A.

Broadly speaking, as you know, and you would know from the results declared, on a consolidated basis IDFC Group actually made a loss of about INR 227-odd crores. Now it's basically driven by -- it is there on the -- on page 7 of the presentation. But if you haven't had an opportunity, let me just share the key drivers of that number. I mean the biggest one is because the bank made the loss, the 40% of that, so INR 275 crores, 2-7-5, negative come from the bank. Before the other, which is IDFC Limited, made a profit of INR 26 crores. IDFC AMC, which is the other operating company, we'll talk more about it is doing well. And in the quarter made INR 18 crores of profit. So on a run rate basis we have moved well ahead of our last year kind of numbers, where we made INR 50 crores to INR 55 crores. And the others, all put together, would be a small INR 4 crores of profit, which includes the increase in the cost value of IIFL -- I mean the IFL, sorry, which is our infrastructure finance company, of which we hold only 30%. So broadly, the loss of INR 227 crores driven largely by the INR 275 crores loss, which we picked up from the IDFC First Bank.

Now why did the bank make such a huge loss, a significant loss? It's something we need to share about. Although large part of it would -- is available on the IDFC First Bank website also. But just to capture the highlights, it's actually driven by the provision line. And just to reinforce this provision of almost INR 1,200 crores, okay? Now of the INR 1,200 crores almost INR 900 crores is driven by assets, which we had already identified in the last quarter, which was in March, Jan to March quarter. So there are no new assets which have caused this significant change. It is the same set of 2 assets or groups. But at that point in time, we had made, actually in advance as we thought, about 15%, 1-5 percent, provision. We have increased the provision coverage ratio from 1-5 that is 15% to 75%. We believe 75% coverage ratio captures all the changes which have happened in between April and June.

Some of those assets reached or downgraded to D grades. So all these events, which happened in the last quarter kind of gave an indication that the -- to have an appropriate level of provisioning we need to take these steps. And at -- so the delta, which is 60% more on roughly INR 1,500-odd crores, INR 1,451 crores to be more exact, is about the INR 900-odd crores, right? 60% of INR 1,500 crores, INR 900 crores. The rest INR 200 crores, INR 300-odd crores is normal and regular in our retail business. And therefore, that will continue. But this INR 900-odd crores is one-off based on identified assets in the first quarter, rather than last quarter of the last fiscal. So going forward, do we expect such large provisioning? The answer is clearly no. And the CEO of the bank has in his various communications through the media has expressed the same. So if you take out the provisioning out of it, let's see what the bank did during that quarter. Because it's important to look at the bank on a medium- to long-term basis rather than purely on -- just for the quarter.

See, our bank, the biggest change, strategically, it is moving in the right direction. That is the message I want to reemphasize. Today -- or rather as of the end of first quarter, the bank's retail assets to total funded assets was 40%. You must remember that we were like almost -- I mean when we started the bank, almost 100% was wholesale and maybe by the -- just before the merger we were 90-odd percent wholesale. At the time of merger, it moved to 30%, it has now moved to 40% retail assets. And the goal and objective is over the next 4 to 5 years to make it over 70% sales. So roughly 70% to be retail and 30% wholesale. So that's the direction in which we are moving. We will not be growing the overall balance sheet significantly. But the mix -- the change in mix from wholesale to retail will improve profitability because as you'll see the NIMs are already 3 plus, and we should be able to improve NIMs of 10 basis points at the minimum every quarter. So that's the directional change, and it is moving in the right direction.

Similarly, CASA ratio, the CASA ratio at the end of Q1 has reached 15%. The number of branches, 280 -- 279. Our capital adequacy ratio of 14%, which is all common equity mostly, a little bit of Tier 2, very small I think. And that also I think very recently, RBI has changed certain risk-weighted assets in favor of retail, and our revised calculations indicate that we will be more closer to 14.5%. So we have enough capital to grow. We will no need to take decrease off capital at this point in time. Well adequately capitalized bank, focused on CASA and branches, CASA ratios improving and the other important focus of shifting the mix from wholesale to retail, all these are moving in the right direction. As far as we know, all the assets which were having a little bit of challenges, which we did identify earlier, it is a housing finance company and a financial conglomerate. We have taken 75% provisioning coverage ratio, which by all standards are adequate to take -- to absorb any other aspect of it, and don't expect any more shocks coming from those.

So if we were to summarize increasing retailization, improving NIM trends, asset quality stabilizing and adequate capital adequacies. So that's broadly the picture of the bank. And if anybody has any specific questions, when we reach on the Q&A, you're -- more than happy to answer those questions. The core -- one other metric which we are monitoring very closely is the core retail deposit ratio now. CASA ratio includes wholesale deposits, which keep going up and down. But the core retail deposit ratio, which are defined as retail CASA plus retail time deposits to total deposit and borrowings also, because we have a large amount of borrowings, it has almost reached 12% which -- in December. So in 6 months it was at 8% from 8% to 12%, it has improved. So the core retail deposits continue to improve.

Just in absolute terms, as of June '19 our CASA was about INR 10,000 crores and term deposits of about INR 36,000. On a Y-on-Y basis, net CASA has gone up by 64%, term deposits have gone up by 35%. Our reliance on certificates of deposit, which is nothing but borrowings in the bank market, that has actually come down by 5%. So all the indicators are moving in the right direction, as far as the medium- to long-term growth of the bank is concerned. And on the income side, I shared with you the excessive or the provisioning number, which went up significantly to INR 1,200-odd crores, INR 1,280 crores, due to increase in provision coverage ratio of those 2 assets. That actually sums up on the banks front.

I will also talk about the AMC, just give me a minute. I want to update on our strategic direction, which is -- which we had shared with all of you. On that, we will focus on retailization and retailization of the group. In that space, we had identified that the bank as well as the AMC are the 2 businesses on which we would focus. And the other businesses, which fall under the category of divestment are -- I'll just give you an update on that. It is moving in the right direction, it is moving as planned. We did have a small hiccup, but I'm happy to share, we have shared it with the stock exchanges the day before yesterday, but even that has been taken care of.

So just to summarize, we had an entity in IDFC Capital in Singapore, that also has been sold to Aberdeen, and the money, which was -- which we gained has been repatriated home. There is some -- we have to liquidate that company and that amount will also come through. As far as IDFC Alternatives and Trustees go, that has also been sold, that's an old news, I don't want to repeat there. IDFC Infrastructure Finance or IDF as we call it, 51.48%, which was the Tranche 1, already sold, old news, to NIIF. The Tranche 2 has 2 CPs just for recollection. NIIF has to form IFC, which is an infrastructure finance company, to buy our 30% stake. The application has moved to RBI. So that application is an update and we are just awaiting approval as soon as possible. I expected it sometime this quarter that should take place. And IDFC on our side needs a notification from CBDT.

So there are the 2 CPs on which we are working this quarter, and we'll be hopefully giving good news in the next quarter. But these are the 2 CPs which will allow us to close the Tranche 2, which is a balanced 30%. The other business which was being divested is the IDFC Securities, just happy to share that on 14th of August the Board has agreed to elect Mr. Dharmesh Mehta along with some other investors, we have a group of investors, who will take 100% stake in this business. We are now in a phase to do all the definitive agreements, documents and regulatory approvals. All of that we hope should happen sometime next quarter, let's say, October, November is the time frame. We believe it should not take more than 2, 2.5 months.

So next quarter, even that should happen, so when me meet next on the results, we should be able to give you a fairly good update on these 2 items. But as far as our understanding in MoU and term sheet -- definitive term sheet, et cetera. Everything has been -- is in place for the divestment of non-retail businesses, which broadly is the INR 1,200 crores number I've been speaking of for the last 1 or 2 quarters. Now obviously, there has -- if people can recollect or should recollect that all the time we have been saying the INR 1,200 crores should be possible to give it to you without any tax impact. However, as we are all aware, on 5th of July under the new budget, the buyback has been made taxable. So obviously, all of you should recollect that we have been saying that we will do it in the tax compliant and tax efficient way, but if tax rules changes, therefore, tax compliance has to be maintained.

So these numbers will get impacted depending upon -- not depending. I mean the fact is now buyback is not necessarily the most tax efficient way. Tax -- most tax efficient way, as we can now see, is the dividend route. But dividend route has its own set of challenges with respect to companies act, et cetera. So we are working all of that too. But the gross number of INR 1,200 crores still stands. The changes, which is happening or is expected to happen, is only guided by the fact that on 5th of July the rules of taxation on buyback have changed, and hence, our strategy to give it back to you in the most tax compliant and tax efficient way is being reworked. But the broad number of cash from which we went -- expect to collect around INR 1,200-odd crores still remains the same.

From a time line perspective, as we said, because of these changes and most likely, it will be following the cash dividend route. This could be done in 2 or more tranches. So as and when we are able to -- so there's no need now to do the buyback and take back 60, 70, 90 days. So as and when dividends are available at the parent level, we will distribute it, and therefore, it might be more than 2 tranches, or 2 tranches at the minimum. That's broadly the -- basically the broad change with respect to the INR 1,200-odd crores which we have been speaking of. Post that, obviously, IDFC Limited will have the bank and the AMC. And then we will start thinking of what is the best way of taking this forward. I think we have done this. The bank have told you about the divestment. So we'll just take -- spend a few minutes on AMC.

The quarter 1 for IDFC AMC, the average AUM grew by 19%, whereas the industry growth was only 4.7%. The quarterly average AUM was INR 82,000 crores -- above INR 82,000 crores. However, as we speak, this is just a point in time, there is a point, but it's a good number. We are well above INR 90,000 crores, I think the number is INR 92,000 crores or INR 93,000 crores. And I'm very hopeful that the next time we have this call we should have crossed essentially by that time. INR 100,000 crores is definitely a good number to talk about. We are progressing well in that direction, just to repeat the number, we grew 19% as against a growth of 4.7% with respect to the industry. The average AUM, average, as of June was INR 82,000-odd crores.

And as we speak, that number is not the average, the point in time number is about INR 92,000-odd crores, okay? Where did the money come? Most of it, our growth 23%, is in the fixed income side. So our market share has improved to 4.4% from 3.7% Q-on-Q. Now why is the money coming in the fixed income? It's purely, purely driven by our prudential approach in investment. With all due respect to the whole industry, I'm very happy to share and I'm proud to share with you that we have not had a single case where we have some sort of an impairment on an asset due to poor credit decision making or any structured kind of a flow. I think that has really helped the market to appreciate the prudential guidelines -- not guidelines, the prudential way we make our investments, and hence, the flow of fixed income is improving despite the fact that there has been a lot of turmoil in the AMC industry on the credit side.

On the equity side, equity is difficult. It keeps going up and down. The markets are what they are. We all know about it. I guess you guys know more. But even in that space, our quarterly average AUM was about INR 24,000 crores, which grew by 9 point some percent. So we've been -- our market share improved slightly excluding the ETF, of course. ETF we have not counted at all, from 1.9% to 2%. So let's say it's flat. On equity side we have been flat, but significant growth on the fixed income side. So strong fixed income performance with high-quality portfolio. Equity portfolio is positioned for earnings recovery. I mean I still want to reemphasize that the positioning of the portfolio is really very good. It is focused on very high earnings assets in between. It's just that the market has to translate from earnings perspective into price.

I mean the earnings growth of the portfolio has -- is more than 20%, 25%, but price has not moved. And the price in the market, as you know, is being -- or the index, et cetera, are all being driven by a few stocks. But things should have correct, and therefore, you will see the equity portfolio is also moving. To summarize, great performance, even if I have to say, on the fixed income side, and maintaining our market share on the equity side. That -- the equity side is a diversified product suite. It is well positioned for growth. And that growth should happen soon and hopefully sooner than later. So that in substance (inaudible) AMC has performed, as I said, very high-level numbers. AMC bottom line, INR 18 crores in the quarter; top line, as we speak, INR 92,000 crores, INR 93,000 crores of AUM. That's the summary of AMC. I think I'll stop now and open the floor for Q&A. Thank you very much for listening.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Sneha Ganatra from Subhkam Ventures.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [2]

--------------------------------------------------------------------------------

Sir, there's a lot of mentioned on this cash dividend which you are planning, already they have received INR 860 crores in balance we are expecting. Could you share some time line in which month you would like to redistribute cash dividend to the shareholders? Already we have received INR 860 crores in our [Q3]?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [3]

--------------------------------------------------------------------------------

You are right about the INR 860 crores. But you see, those INR 860 crores are in various companies, it is not -- and if you will see the Slide #11 on our presentation, which is there. IDFC Limited, which is the entity which can declare the dividend and give you the money because you are the shareholder of IDFC Limited, if you are that is, and that is there is only INR 450-odd crores. It is lying in some other companies. And moving money in the most tax-compliant and tax-efficient way given our provisions may take some time. But your question is valid as to -- that's why I'm saying it will happen in 2 tranches.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [4]

--------------------------------------------------------------------------------

Sir, agree in 2 tranches a year, but could you share, like in the third quarter, we would like to give half portion of the dividend. We just want the time line and the date and the month also, that would be really nice. We are holding it.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [5]

--------------------------------------------------------------------------------

Yes, yes, yes. I see the item. I can't really share because I -- things have to move. And things don't move as I want it to move. As we all want it to move. I can only talk of the intention. But if you are looking for intention statement, it is likely to be planned in third quarter and fourth quarter.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [6]

--------------------------------------------------------------------------------

And this would be part by third and fourth?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [7]

--------------------------------------------------------------------------------

Sorry, couldn't hear you?

--------------------------------------------------------------------------------

Unidentified Company Representative, [8]

--------------------------------------------------------------------------------

Part, part.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [9]

--------------------------------------------------------------------------------

Yes, yes, part, part obviously. That's why I said minimum 2 tranches.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [10]

--------------------------------------------------------------------------------

Okay. My second question is on the AMC business. Current quarter, you have made a profit of INR 18 crores. What is the target for the profit number for FY '20 for the fair assumption?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [11]

--------------------------------------------------------------------------------

Well, INR 18 crores into 4 is INR 72 crores. So it was a little bit more than INR 75-odd crores. And INR 75 crores to INR 80 crores, let's see where it ends up. But just multiplying and expecting a linear thing is not -- I mean -- but yes, why not, that's where we are targeting. And let's see where it ends up. Maybe we'll surprise ourselves. But it also depends on how the equity markets perform. As you know, the fees is linked to the equity markets mostly. And if equity markets don't move up we'll be concerned in that set of the outcome. But broadly speaking, we did make INR 18 crores. There's no reason for us to believe we'll make less than that as we go forward. AUMs are growing. So your guess is as good as mine.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [12]

--------------------------------------------------------------------------------

Okay. And on the AMC business, will you would be continuing your AMC business? Or we -- or any plans to give the shares to the shareholders post-demerger?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [13]

--------------------------------------------------------------------------------

See, we are exploring all alternatives to provide whatever is possible in a tax, again, compliant and tax efficient way. Our current understanding, which is subject to another round of meetings with senior tax counsel, in that such a transfer of shares to the holding company -- I mean, to the shareholders or a demerger, et cetera, is not, I repeat, is not a tax-compliant demerger, and the consequences of a nontax complaint demerger are unknown. And we do not want. So we're still exploring the various options, but at this point in time, we don't have a very clear answer.

Obviously, we don't want to give -- do something and then later on realize, oops, Indian corporate history is full of incidences where large companies have got large tax contingent liabilities. I don't think so this management or the Board wants to move in that path where we don't know what the potential outcome could be. So at this point in time, we -- all I can say is we are exploring all the various options until we have a clear -- a clarity as to what is the best possible way of providing -- improving our shareholder value. I would not like to give any direction in that space.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [14]

--------------------------------------------------------------------------------

Okay. My third question is, I just wanted to have some clarity on the IDFC Bank, 20% stake would get free from -- in October 2020. So what is the thought process on that?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [15]

--------------------------------------------------------------------------------

Yes. We -- the lock-in period of our current lock-in for the -- it will get free on October 2020. So that -- from that point onwards, we are free to divest. And obviously, at least my current thinking, but it is an overhang in the market, we are not going to divest in the market. That's not the right approach. We will look for some strategic options to see who else can we do -- share that. As you know, between 40% and 26%, and I used the word 26% because our voting rights are limited to 26% by law. So between 40% and 26%, depending on what we can find, we will look for divestment opportunities. But at that point in time, it's all dependent. I mean I can't -- today we are at one price, we see the things improving.

It's like any shareholder or any investment, you will see as to what the future potential growth of that stock is at that point in time. And based on that, we will take appropriate decisions. But if it looks like, and it's a big if, if it looks like that divesting some portion of it and pushing the money up to the shareholder depending on. Again, the tax rules have changed. It's a good thing to do, we'll do it. We have no intentions of holding onto it, unless we believe that the growth of the stock price is more than what we can give it back to you. And at that point in time, hopefully, after we have done all this, the market will readjust the holdco discount.

But assuming the holdco discount continuously remains, which, after the dividend, probably moves up to beyond 55%, 60%, we will take the right calls and whatever is in the benefit of the shareholders. We will take those actions at that point in time. But to be able to forecast 1 year in advance as to how the stock prices will be moving forward, that's not a skill set I have. I wish I had. But I don't have that. But intention wise, there is no intention to hold on to 40%. The intention is to monetize the value and transfer at the appropriate time.

--------------------------------------------------------------------------------

Sneha Ganatra, Subhkam Ventures - Analyst [16]

--------------------------------------------------------------------------------

Okay. Sir, but you have -- I have one more question. And they have listed that INR 450 crores in the -- this -- we can distribute. And why we are waiting for third quarter also? Already we have received INR 450 crores, we can easily distribute this to the shareholders. That's possible, right? Why do we have to wait for third and fourth quarter?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [17]

--------------------------------------------------------------------------------

Yes and no. Yes and no. Yes and no. In the 2 senses of the word whatever will happen. There is that DDT aspect of it. We have to see. This is becoming a tax debate out here. We will -- but we have not -- look, it's August 15 right now, okay? So when I say third quarter, let me also say, early third quarter. It's not December.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

The next question is from the line of Ankit Singh from Valley Partners.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [19]

--------------------------------------------------------------------------------

I wanted some update on the reverse merger. You haven't mentioned anything about that.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [20]

--------------------------------------------------------------------------------

Yes. The reverse merger, my dear friend, is not in my hands. It is how RBI looks at it. I -- and any which way I can tell you our informal conversations and whatever runs here from the market, there's nothing we can do till October 2020. So let's keep that time line prospective in mind. But at the same point in time, we will continue to engage with RBI and find a solution, which allows us to maximize value, whether it is through reverse merger or divest -- (foreign language) sorry, demerger. We have the AMC businesses, the growth, so the engagement. And what we are actually, also we'll get enough indications as to how RBI is thinking, as we see what happens to 1 or 2 of the small finance banks. Now -- and as far as I know, and you may have heard something different, that they are insisting on the small finance bank to list both the entities, the holdco as well as the bank.

Now if you're insisting people to list at the end of year 3, and then at the end of year 5 we will have a different view. But anyway, to -- yes, I have not discussed with you reverse merger because I don't have any certainty or any clarity from Reserve Bank of India. One thing is very clear, and it's up to all of you that unless we have clarity we will not take steps because the non-core businesses we have taken steps, okay? So let's be very clear on that. When you could ask on all the non-core businesses in our opinion, that is those businesses which do not help us retailize our group. We have taken steps, and everything pertaining to that, we just spoke about it. Now these 2 are core businesses from a strategic direction.

We issue our businesses, we are -- which is creating wealth and generating value for the shareholder. And hence, how we manage these 2 businesses which is linked to the last questioner also as to what happens, do we divest, what do we do? But to summarize all of that, we need to have regulatory clarity, and we are working. So let's not also take away from this that we are just waiting for October 2020, and then we'll wake up one day and start talking to Reserve Bank of India. That is not the case. We are trying to ascertain clarity to the best of our ability. But no further action is planned till clarity emerges from Reserve Bank of India.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [21]

--------------------------------------------------------------------------------

Okay. But you are in discussions with them to get this clarity?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [22]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [23]

--------------------------------------------------------------------------------

Okay. Because the small finance banks have been saying that they're planning a reverse merger 5 years after their listing. So it seems like they have some clarity from Reserve Bank, no?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [24]

--------------------------------------------------------------------------------

Yes. Sorry to use the word. I mean look, people talk. Can I -- if I may request, I mean if I were a shareholder and then I'd say that if you have such a clarity, can I see a copy of that letter. Anyway, let's not -- I would not like to comment on that.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [25]

--------------------------------------------------------------------------------

Okay. No problem. Okay. And my next question is, okay, suppose we don't do a reverse merger. In September, once the lock-in of the bank shares ends, can't we distribute them to IDFC Limited shareholders?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [26]

--------------------------------------------------------------------------------

It's the same question asked by the last person. As I said...

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [27]

--------------------------------------------------------------------------------

Yes, but I'm talking about all the bank shares, not just 20%.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [28]

--------------------------------------------------------------------------------

No, no, I understand your question. I understand your question. I think we should have this time around that all being posted on our website. As we speak, tax counsels do not agree that certain activity can be done. I mean the cost of the tax indication of such activity, the tax liability could be significant, and I -- and unless we have -- they are exploring this because they have never -- it doesn't seem that they have -- such things have been very common unless there is a demerger and then you can do some things like that. The problem is our structure is quite unique because the owner of those stocks is NOFHC, not IDFC Limited.

So there are a few complications in this structure. It is not a tax-efficient way. But all I want to say to you, all the guys on the call, so that we don't have this misunderstanding is that we are in discussions at various fronts: a, with the regulators, as we spoke; b, with senior tax counsels. And all the options you have shared on the call and others I had one at various points in time are being evaluated in a serious manner to come up with the most optimal solution. So we are running with 3 or 4 balls but we don't -- as we speak, we don't seem to find a way out of this tunnel. There was a very simple way, by the way, which got locked up on July 5. Otherwise, the most simplest of the lot could have been at a very low cost. And our estimate of cost was about 7% to 8%, not more than that. Thereby, we could have transferred value back to you.

So as the life is getting more and more complex, we have to still find that way which -- to answer that whether we can give you just the shares. And what is the tax impact of that on us as the company and what is the tax impact of you. I don't think there is too much tax impact unless you sell it and as and when you sell it. But as a company, we would have some significant tax liability, and one would need to be very careful about it. There are 2 things, and I want this -- the reason I'm elaborating it because this question's been asked -- and thank you for asking because we've been asked many times. What we want? We want a certainty of tax liability, if any. The last thing you want is an uncertain tax liability because once that is done, the IDFC Limited has nothing left.

So where the hell is the tax demand comes, where -- what will happen? Who will pay for it? We'll have to go and run after each of you shareholders and other [assets]. So it's -- and all of this has to be well thought through. There is big grayness -- not gray, actually as of now, our tax counsels have been very clear in saying that this would be a very difficult proposition. But let's -- we have, as I said, there is a regulatory, in that space, reverse merger seems to be a much better answer to this, okay? There's no doubt about it.

So between the 2 if one had to choose then one will lock the reverse merger methodology. But even for reverse merger, there is this issue of how do you demerge. So this is a multifarious problem. All I can tell you is enough attention is being paid. Obviously, what we wanted to do was to first clear up the nonretail businesses because any time line and to start with, again, as I said, anything which can be done, can -- will be done only post October 2020. So it's not that we don't have time. So let's take it step-by-step. We'll finish step 1, phase 1, parallelly engage with the various stakeholders in step 2 and see what is the best possible option, and we do have at least 15 months or so to come up with the most optimal option.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [29]

--------------------------------------------------------------------------------

Yes, because, sir, the reason I asked this is because this basically trading at a 50%, 60% holding company discount. So unless you present to us shareholders the tax impact of any such move, you know I'm already losing 60% of the value of those bank shares today. So are you telling me the tax impact of distributing those bank shares will be more than 60%? I doubt it will be so high. So don't you think it's necessary to present shareholders with all the expenses and the tax cost and let them make the decision.

And right now, we don't -- we're not aware, so don't you think that the information should be presented to us so that we can take a call, because right now I'm losing 60% because of the holding company discount. If I asked to pay 20% tax on any bank shares, maybe that's okay, maybe that's an option right now shareholders will be willing to accept. So there's so much -- kindly provide more clarity on that by engaging tax counsel and tax experts and allowing shareholders that decision, enough information to make that decision.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [30]

--------------------------------------------------------------------------------

Yes, but anything can't happen below -- before 2020, remember that.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [31]

--------------------------------------------------------------------------------

Yet, but I mean we have enough time to present that information 6 months in advance here or even 9 months in advance.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [32]

--------------------------------------------------------------------------------

Yes, yes, we will.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [33]

--------------------------------------------------------------------------------

You don't have to wait for that date.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [34]

--------------------------------------------------------------------------------

Yes, yes. Yes, we're working on it and finding -- I'll -- we will get to you all the relevant information on that.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [35]

--------------------------------------------------------------------------------

Yes, so can we expect that, say, may be in a couple of quarters?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [36]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [37]

--------------------------------------------------------------------------------

Yes, because I mean it's important for our shareholders to get that information, right?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [38]

--------------------------------------------------------------------------------

I understand that all. That's all -- this whole IDFC group, IDFC Limited or the group of 5 or 7 people, that's all we think about. So the answer to you is yes.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

The next question is from line of [Gautam Vel] from Morgan Capital.

--------------------------------------------------------------------------------

Unidentified Analyst, [40]

--------------------------------------------------------------------------------

It's really to push more on what the previous questioner was asking. Is this hypothetical scenario of demerging 25% of the 40% that we have in the bank directly to shareholders? Is that any different from what we had done a couple of years ago when we had demerged, I think it was around 53% business shareholders? It looks to me like exact same thing, right, why should the tax statement be any different?

(technical difficulty)

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Participants -- we can hear you. Members of the management, if you can hear us? Participants, please stay connected while we reconnect the management. Participants, thank you for patiently holding your lines.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [42]

--------------------------------------------------------------------------------

Sorry, we were disconnected. Basically -- I think I have answered that question. But just to put it in last one sentence, yes, we will be in a position to provide you better clarity within a quarter or so.

--------------------------------------------------------------------------------

Unidentified Analyst, [43]

--------------------------------------------------------------------------------

No sir, my question really is, is that any different from what we've already done? Let's say, in October 2020, you spin off 25%, which we are allowed to do, right, on that date. That is nothing different from what we've already done, right? When we went from 100% to 53%, I think it was.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [44]

--------------------------------------------------------------------------------

No, no, no, that was different. That was that tax-compliant demerger under the law. This is -- that's where the whole problem would be, it depends on how we go about. Actually, we can divest, okay? There is nothing which prevents us to divest x amount and then push the money up from 40%, so -- but then I thought I had answered. If you dump it in the market, the stocks will just...

--------------------------------------------------------------------------------

Unidentified Analyst, [45]

--------------------------------------------------------------------------------

No, no, sir, initially -- unless my understanding is wrong, you did a tax-complaint demerger from 100% and directly gave those shares to shareholders to go down to 53%, I think it was. And now on October 2020, can you not do a tax-complaint demerger of shares directly to shareholders to go from 40% to 15%?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [46]

--------------------------------------------------------------------------------

I hear you, I hear you. And the simple answer is, our current advisors say no. That is not tax compliant. That is the simple answer. And we spend a lot of time in the last 15, 20 minutes explaining to you the various stakeholders, and I have also kind of said that by the next quarter also, we will come up with the most efficient way of ensuring that the value, which has got lost and that there is no denying that we are running 50% odd holdco discount, and it is my objective, my goal, my role to minimize that as soon as possible. And therefore, whichever way it works, we will -- but we'll have to have very firm answers, and the only point I keep repeating is having uncertain tax liability is not the right way of serving shareholders.

--------------------------------------------------------------------------------

Unidentified Analyst, [47]

--------------------------------------------------------------------------------

Fair enough. I think it would be quite helpful if you give that tax clarity to shareholders in next quarter or 2?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [48]

--------------------------------------------------------------------------------

We will do. And I said in the next 1 or 2 quarters, probably as earlier the better.

--------------------------------------------------------------------------------

Unidentified Analyst, [49]

--------------------------------------------------------------------------------

Because even AMC's demerger, I mean seeing relevant examples in the market, I think many people -- that there's couple of remedies to it and the tax-efficient and tax-compliant demerger is possible. So it is quite frustrating to keep hearing that it might not be possible. Given -- because that the current discount is actually 70% to 80% if you calculate the value of AMC as well, right? Given what the tool [listed] AMC are doing in the market, what our AMC is being valued at is quite frustrating. So it really would be helpful if you could be a lot more sort of proactive in giving some color to shareholders of what's going on, that's all my -- that's my limited point really, yes. And given the current tax treatment in the country with buyback stocks and dividend tax, it really does seem like a demerger usually will be the most tax efficient and it's usually tax compliant as well. So more color on that would be very helpful.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

Yes sir, do we move to the next question?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [51]

--------------------------------------------------------------------------------

Yes, go ahead.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

The next question is from the line of Sarvesh Gupta from Maximal Capital.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [53]

--------------------------------------------------------------------------------

So just a few quick questions. So this INR 1,250 crores is net of the capital gains tax, right?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [54]

--------------------------------------------------------------------------------

Yes, but not net of, it -- this is not the amount which can reach to you.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [55]

--------------------------------------------------------------------------------

Yes, yes, that I understand, sir.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [56]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [57]

--------------------------------------------------------------------------------

Secondly, this INR 450 crores, I think I missed that answer. You mentioned that there are some company act related to challenges for distributing this immediately.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [58]

--------------------------------------------------------------------------------

Not for the INR 450 crores. I mean there are and there's not -- look, there is a DDT issue, right. And if I give it from IDFC Limited, I must -- then otherwise I accept that I pay 20% on DDT. If I -- I don't know which section it is. It's in the taxing the dividend received net of DDT paid can be deducted. So I'm trying to optimize that part. Now to move dividend up from subsidiary, the only other way is to move dividend from (foreign language). I said if they're to move their dividend up, there are -- I mean (foreign language). There are -- and this is not the forum. If you are very keen, I direct you to think, but I can -- you think -- it's all there on the -- if you study the balance sheet and the numbers.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [59]

--------------------------------------------------------------------------------

Sir, we'll take it off-line. But what I'm hearing is this INR 450 crores can be distributed in the next quarter or in the next to next quarter?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [60]

--------------------------------------------------------------------------------

Yes, yes, next quarter. So this INR 450 crores, I answered that, I said early next quarter, early next quarter.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [61]

--------------------------------------------------------------------------------

Early next quarter. Okay, sir. And the other INR 390 crores, which is at IDFC Alternatives, that will be distributed post January 2020, is my understanding.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [62]

--------------------------------------------------------------------------------

Yes. Those -- there are some moving parts of that, but as you...

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [63]

--------------------------------------------------------------------------------

That's the plan.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [64]

--------------------------------------------------------------------------------

That's the plan.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [65]

--------------------------------------------------------------------------------

So maybe by fourth quarter, we should expect this INR 860 crores being distributed totally.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [66]

--------------------------------------------------------------------------------

That is correct, if not more.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [67]

--------------------------------------------------------------------------------

Okay, sir. And this INR 390 crores, sir, any expectation on this?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [68]

--------------------------------------------------------------------------------

The overall plan is to pull out the whole INR 1,200 crores and distribute by the end of fourth quarter.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [69]

--------------------------------------------------------------------------------

Okay, sir. And sir, some comments on IDFC Bank, sir. Since we are the principal shareholder, I think 2 comments. One is that the provisions never seem to stop. So like there are too many one-offs which we are continuously seeing at IDFC Bank level. I think when the ex-management was there, they did a large provision. We thought that is the end of it. Then Mr. -- the current CEO came. He did 1 quarter of heavy provisions and that again we saw as one-offs. And now again this quarter, we have pretty large one-offs. So sir, the credibility of remaking a statement that these are just one-offs are eroding and that is where market is also kind of valuing it pretty -- is not valuing it properly because of that.

So we -- I think we need to suggest to the management that they need to keep -- they need to maybe do it in one shot. Whatever are the one-offs should be done in one instance. We can't have this continuous provisions, which keep occurring on a very recurring basis every quarter. So I think that is one comment. And I think if we can pass on to the management of IDFC Bank that would be helpful because our credibility is at question.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [70]

--------------------------------------------------------------------------------

So fully, fully, fully agreed with you, and fully -- I do want to say this on part of the management. They are also completely aligned in ensuring that there have been too many one-offs, but I can only assure you with one thing that we are -- I mean if there is something, so there are two different ways of approaching this, and I want to be clear about it. Yes, we do not want and there have been too many one-offs, and I cannot deny that. It's not that we are not able to -- the management is not able to read that, things have happened too fast in the last -- and these are those 2 accounts and that the whole world knows about it, okay. And the speed at which they deteriorated is also known there.

So yes, we are aware, we are pushing them. They are aware. But one thing you have to give credit to the group overall is that we will not hide it. We have never hidden anything. So yes, we are reasonably confident at this point in time that they're no -- I mean how should I say, known, unknowns. So there's nothing there of which we are aware of now. The world seems to change so fast and not definitely for the better, I only hope some of it changes and we can recover some of it, look 75% provisioning on those 2 accounts may give an opportunity of some small recovery also in the future, but I don't want to comment that.

I just only want to say that, yes: a, I agree 200% with you; b, the management is fully aware of it and conscious of it. And the only caveat I was saying is that, unfortunately, if such event -- if something happens, as a philosophy, we will not hide back and try to flip it through. We will be upfront and share it with all the good news, bad news as it comes along. But there is no denying in what you said that comment is kind of repeated almost every month, if not every quarter, and we are trying to ensure that things stay within the expected range, and these -- such shocks are hopefully things of the past.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [71]

--------------------------------------------------------------------------------

And sir, one more thing, I think in the previous call, one of the participants had requested you to request IDFC Bank management to hold con calls, as almost every other bank do it on a quarterly basis. But sir, I don't think they have even done it, even in this quarter. So any comment on that?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [72]

--------------------------------------------------------------------------------

We have communicated it. And the answer is, at an appropriate time, we will start the process.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [73]

--------------------------------------------------------------------------------

Yes, sir. Because sir, it also helps the management a lot in terms of how the market is looking at them et cetera, et cetera. And I think the -- again, the thinking in many market participants is that management is shying away from taking the hard questions, which will be asked by the analysts compared to the media. So that is one, sir. Now on the AMC, sir, is there a way we can see the P&L on the presentation every quarter? I think that would be very helpful if we can.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [74]

--------------------------------------------------------------------------------

Sure, I will take that point. It is -- I don't see any reason why you should not see more granular level P&L. We'll do. We'll take care of it. That's easy.

--------------------------------------------------------------------------------

Sarvesh Gupta, Maximal Capital - Founder [75]

--------------------------------------------------------------------------------

Understood, sir. And I have one final question, sir. I think you alluded earlier that you will look to sell some stake in IDFC First Bank, but you also, I think, kind of alluded that you will also look at the market valuations, and you would not dump it, that is understood, but you will find a strategic investor in it. My only comment is that, sir, that earlier when it comes to unlisted company, like IDFC AMC, it is okay to kind of look at the valuation because the shareholders don't have any way to participate in IDFC AMC if it is not sold in the right valuation. But when it comes to IDFC First Bank, subject to of course all regulations, I think the management of IDFC should not take a call on the right valuation, rather it should sell at the market valuation.

Of course, not at a distress valuation, and of course not -- it should not dump into the open market because obviously, the liquidity would not be there. But you should find a buyer who is at a similar level to the market valuation. Because if any shareholder wants to participate in IDFC First Bank and he feels that the shares are very undervalued, they can always buy those shares, they can get some realization from IDFC Limited and use that to buy at IDFC First Bank listed shares. So this case is different than IDFC AMC.

Here I think the management of IDFC Limited should not try to wait for the right valuation, let's say, you have 5-year view on that, that it will go 3x, 4x, that is not a view which IDFC Limited management should take, rather it should sell at the market valuation subject to the fact that at that point of time, market valuation should not be a distress valuation and secondly, you should not dump into the market. So that is my comment in terms of part selling the stake of IDFC First Bank.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [76]

--------------------------------------------------------------------------------

I think you have a very valid point. And I didn't exactly mean that I'm going to bounce on that. I mean, broadly, the idea was that there should be a buyer. It should not cause a distress. I mean the discount to the market et cetera, et cetera. But broadly, I get your point, okay. And I do not disagree with you. As a matter of fact, I agree with you.

--------------------------------------------------------------------------------

Operator [77]

--------------------------------------------------------------------------------

The next question is from the line of Ankit Singh from Valley Partners.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [78]

--------------------------------------------------------------------------------

Yes. I just wanted to find out when will the annual reports be coming out for IDFC and the subsidiaries?

--------------------------------------------------------------------------------

Unidentified Company Representative, [79]

--------------------------------------------------------------------------------

First week of September.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [80]

--------------------------------------------------------------------------------

First week of September. Our AGM is...

--------------------------------------------------------------------------------

Unidentified Company Representative, [81]

--------------------------------------------------------------------------------

First week of September.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [82]

--------------------------------------------------------------------------------

You have to announce it, right? You can't announce it. You have announced it?

--------------------------------------------------------------------------------

Unidentified Company Representative, [83]

--------------------------------------------------------------------------------

First week of September is our AGM. We'll be sending out in first week.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [84]

--------------------------------------------------------------------------------

Okay, great. And there was just one item in the 2018 annual report in the fixed assets, there's this INR 100 crores of wind mills. You haven't previously discussed this. Yes. Can you just discuss...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [85]

--------------------------------------------------------------------------------

We still own it. We get some return. But yes, this is also one of those assets, which needs to be disposed of...

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [86]

--------------------------------------------------------------------------------

Yes. Because it's almost INR 100 crores gross block. So I mean, is there any plan to get rid of this also?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [87]

--------------------------------------------------------------------------------

The net block is about INR 60 crores. But you're right, we get to see it -- yes, it is on my list of assets to be disposed, definitely, noncore.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [88]

--------------------------------------------------------------------------------

Okay. Okay, fine. That's fine. And just one last question on the regulatory cash between IDFC and the NOFHC. There is almost INR 1,000 crores of cash in this 45-IC reserves. So I know that's a RBI mandated reserve, which NBFCs need to have. But my question was that suppose we go for a reverse merger or a collapse of the structure, in that case, does this cash actually get freed up and can be returned to shareholders?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [89]

--------------------------------------------------------------------------------

My answer to that is that if we go for a reverse merger, it moves to the bank.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [90]

--------------------------------------------------------------------------------

Yes, of course, but this additional cash on top of the INR 1,250 crores, correct?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [91]

--------------------------------------------------------------------------------

No, there is no equivalent cash on the asset side. It's all the investment in a bank.

--------------------------------------------------------------------------------

Ankit Singh;Indus Valley Partners;Analyst, [92]

--------------------------------------------------------------------------------

Okay. So this is not -- this is just an accounting reserve. It's not that you actually have the...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [93]

--------------------------------------------------------------------------------

Accounting reserve and not a cash reserve. Yes, yes. it's an accounting reserve. Sorry, if that...

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

The next question is from the line of Rikesh Parikh from Barclays.

--------------------------------------------------------------------------------

Rikesh Parikh;Barclays;Analyst, [95]

--------------------------------------------------------------------------------

Thanks for clarifying on the time lines for the distribution of the corpus, I mean, funds line with us. Just a question, now that dividend tax and the buyback are more or less at par on the taxation front, why can't we think of buyback of the shares and enhancing the value of the shareholders? I mean whoever wants to tender or you can return it by way of at the book value to the shareholders. Any thoughts on this?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [96]

--------------------------------------------------------------------------------

We have done our numbers to be -- well, it's very simple. Dividend is still efficient compared to buyback. You can do your numbers.

--------------------------------------------------------------------------------

Rikesh Parikh;Barclays;Analyst, [97]

--------------------------------------------------------------------------------

Yes, sure. I mean it was broadly to enhancing the shareholder value, because...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [98]

--------------------------------------------------------------------------------

As dividend, we are just giving it back and you can do whatever you want with it. Look, 90%, there will be a few people who may prefer buyback over a dividend. And there is a time line issue with buyback. It is -- one goes through various processes and a minimum of 90 days, whereas -- and if you look at it, you can do your maths, dividend versus -- there is actually almost -- if I have INR 100 -- since I've done it, I'll share it with you. If you have INR 100 to distribute, if you do dividend, the shareholder gets INR 83. If you do buyback, the shareholder gets INR 79.40 or INR 79.50, I don't remember the exact number. So now the question is, wow, there is a INR 5 difference, why the hell should I go buyback route?

--------------------------------------------------------------------------------

Rikesh Parikh;Barclays;Analyst, [99]

--------------------------------------------------------------------------------

Okay. And now what's our -- secondly, what's our thought process on the AMC side of the business? And how we're looking at it going forward?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [100]

--------------------------------------------------------------------------------

Just now where we just shared that it is (foreign language) we're doing well, and we continue to expect to be able to create much better value in a very short time out there. And then we will see how best we can monetize it, either getting a strategic investor most likely or we do an IPO, those are options. But it needs to reach a certain level. And I have said, I think, in the last time I was in, before that, at the right time, at the right size. I think the size is still relatively small, and obviously, this is not the right time from a market perspective. P&L -- somebody asked about P&L. Of course, we're going to hit the INR 100 crores very soon.

But from a profitability perspective, it's still -- there's a bit on the -- the operating leverage is not yet kicking in. And we know the answers to that, that the equity mix to debt mix which is 30 equity, 70 debt, is still -- is not going to allow you to have a very good bottom line. And hence we -- but we can see that once you reach a certain size, you are of an appropriate -- you are within the space of being, if I may say, relevant and then along with the fixed income, then the equities also start moving and we'll do it. I mean end of the day, end of the day, and I want to repeat this every -- so that everybody on the call -- IDFC Limited is a holding company. We have -- and everybody has said it, depending on how you value x and y, we have, I think some 60%, 70% holdco discount. No management worth its salt can stand up and say we will continue to do -- we do it as business as usual and everything will be fine.

So all our efforts are to ensure at the minimum either the market starts recognizing that this is a stupid -- forget the adjective that this holdco discount is completely inappropriate and starts -- the price starts moving in the right direction or we'll continue to take steps to at least convert it, monetize it and push it back to the shareholders so that the holdco discount starts coming back appropriate to the amount of tax losses, which we may have. So in a theoretical model -- I mean for me to do the action, push the cash back, to bring down the holdco discount, it's just unnecessary. The market should adjust itself to see that this is what is the planning, because we're not going to hold whatever earnings comes or whatever be the monetization opportunity, we convert it and push it back. The only loss is tax loss. And therefore, the holdco discount should converge towards the tax losses.

Now that's the theory, but it never happens. God knows why. But we will be making all efforts to ensure that this holdco discount, and if it means monetizing some assets, pushing some cash back just to build the confidence and credibility in the market, that's -- and I -- and my hope is, by pushing back the INR 1,200-odd crores, of course, after the taxes, will give confidence back to the market that we do what we were saying. It's just that the time lines are not exactly in my control. It requires so many approvals at various points in time. But these are the steps, which I am very confident will -- which will help reduce the various holdco discounts -- and we are working on all fronts. This is one which you will see in the short period of time, which is like the first cash flow should happen early next quarter, the second one maybe the quarter after that. And if every quarter -- and clearly, I could push some money back. The holdco discount by design has to come down. And we are working to find best possible way to push the money back.

--------------------------------------------------------------------------------

Operator [101]

--------------------------------------------------------------------------------

The next question is from the line of Anish Jobalia from Banyan Capital.

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [102]

--------------------------------------------------------------------------------

So my -- I just had one question regarding the Slide 12. So I just wanted to know, like, what would be the unanticipated delay in the completion of the merger and the capital reduction by Jan 2019 -- 2020, sorry.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [103]

--------------------------------------------------------------------------------

Yes. What could be the -- I think the last one, which is -- see, any NCLT process, okay. Now one of the reasons, second step, which is alternate -- we are moving the offices to Chennai, the NCLT in Bombay -- these entities are in Bombay registered. My company secretary, he may correct me if I'm wrong. So we're first moving it to Chennai, because Bombay is chockablock full. I mean your case won't come up for -- couldn't -- I mean there is a risk of that. So we are moving it to Chennai, because that's where IDFC Limited is. So instead of having 2 courts -- because the -- unless the time line slippages is only dependent upon court process, and yes, that's the only risk factor I can see out here.

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [104]

--------------------------------------------------------------------------------

Okay. So can it be assumed that, like, 90% we are sure that it should be adhering to this time line? I mean build on your rough estimate of how things could be panning out? Or it's like more uncertain basically this time line?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [105]

--------------------------------------------------------------------------------

No, I would assign 90% probability. There -- sorry, I need to add, although the percent probability there is high. As -- if you'll go back to Slide 11, there is this IDF tranche 2. So that is also a -- so the -- once that happens, then only the capital reduction will happen. So there are 2 dependencies, not 1. But we're more hopeful of tranche 2 completing, because both parties are working. But that's on a regulatory front, basically meaning Reserve Bank of India and CBDT. So as -- from a stakeholder perspective, there are 3 stakeholders whom we need to manage, since you're talking time lines and risk to time lines. It's only risk to time lines, not risk to the B. A, Reserve Bank of India is one stakeholder. CBDT is the other stake holder. These 2 events will take care of tranche 2. And then we move to capital reduction, which is the NCLT part. So these are the 3 moving. But we have done our estimate, and we do believe that Q4 is not an unreasonable expectation.

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [106]

--------------------------------------------------------------------------------

Okay. And just one question -- I mean a few questions on the AMC. So I just wanted to know like despite of our AUM grown so handsomely in this quarter, our revenues have actually declined as compared to last year. And the segment results are flat, but still the PAT has grown by, I think, close to 30%. So I just wanted to know, between that -- so how do you -- how does one think about this, the growth being different between the line items? So -- and all the...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [107]

--------------------------------------------------------------------------------

Let me answer it in -- and this thing where the -- you know margin squeeze is happening, okay? That's SEBI. That's where SEBI came in, in September, October last year. And so the volume growth is obviously much more required to even maintain the same levels of revenue. The next part is simple operating leverage. The OpEx growth is much lower compared to the revenue growth, which will give you a much better -- at least what percentages and the numerator, denominator. We are too small to get -- the numbers will look bloated. I mean last year, same quarter, some one-off event could be there, which is not here.

But I can assure you that the strategic direction is: a, grow AUM; b, focus on equity growth, because that is more, if I may say, remunerative, but it has 2 impact not only from float perspective, it is also the market condition, if market condition is going to improve, that's the thing; and c, manage the cost at eyesight level, so which is what I call the operating leverage. If these 3 levers are pushed and they move in the right in sync, you will see this improvement. And in the specific case, just to give a specific number, the overall -- the income did grow by only about, I think, 18%, 19% or so, and the cost came down by 5-odd percent. And hence your core PBT, if I may use the word, went up by almost 40%, 50%.

And there are some one-off incomes and one-off costs, and that's how it works. No, no, there's one more item, and how can I forget that. July 5th gave so many a negative news from a buy back perspective. The fact is that the tax rates have moved from 33% to 25% in this specific entity because of that turnover moving over from INR 250 crores to INR 400-odd crores. So there's a small benefit there also. That -- so those are the 3 things which have helped. So...

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [108]

--------------------------------------------------------------------------------

Okay. Because I was not able to reconcile...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [109]

--------------------------------------------------------------------------------

So somebody asked -- you are right, somebody did ask that going forward, we will share the line items on the P&L.

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [110]

--------------------------------------------------------------------------------

Okay. But just a quick question, because we have had this target of doubling or tripling PAT over 5 years. And so the question was that because your -- this debt to equity is very dynamic, sometimes the debt grows very fast, and then going forward, we expect the equity to pick up. So I just wanted a broad thinking of your -- like when can we achieve that doubling or tripling of PAT at what kind of AUM levels and what kind of equity and debt mix basically? Because like in this year only, we'll be growing AUM at, I think, 35%, 40%. So the PAT will obviously move in a similar fashion. But the question is, like, our expectation is much higher when it comes to the AUM PAT growth. So directionally, when we see this? I mean it's okay if it is 3 to 5 years, but what kind of AUM levels and debt to equity mix can we see those?

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [111]

--------------------------------------------------------------------------------

Okay. I don't recollect, because I -- this exercise was done in a very dynamic [35]. I'd just tell you broad lines. I think we are talking of AUM levels of almost 220-odd thousand. We are talking of a debt-equity mix of almost 60-40 or maybe 55-45. And basically, the operating leverage, because OpEx shouldn't grow, should result in -- let me put it this way, in a very simple manner. And we monitor that ratio. PAT as to AUM is currently about 8 basis points roughly. That we expect to move it to (inaudible). That's how it should move.

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [112]

--------------------------------------------------------------------------------

So okay. And so in the -- like over the next...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [113]

--------------------------------------------------------------------------------

Okay. That's 3- to 4-year period time, okay?

--------------------------------------------------------------------------------

Anish Jobalia, Banyan Capital Advisors Private Limited - Senior Research Analyst [114]

--------------------------------------------------------------------------------

Yes, I got that. And what is the impediment of holding the AMC directly under IDFC instead of NOHFC (sic) [NOFHC]? I don't know if you've covered this, but in case you haven't, I mean, just to...

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [115]

--------------------------------------------------------------------------------

Just 2 things. Okay? Let's just step back. The current structure was mandated by Reserve Bank of India in our licensed conditions when we got the license in 2015. If there is any way I would not, I mean, even in my dreams, never have such a structure which is so inefficient. This is a mandated structure with Reserve Bank of India. And as spoken earlier in the call, we are in dialogue with Reserve Bank of India to trying to tell them, "Look, this will not work. If you want to kill an institution, you're more than welcome. But please, going forward, relook at the structure, because this structure causes a whole lot of tax inefficiencies, which result in the shareholder value being depleted rather than being created." So I'm -- so just to answer your question in one line: a, it's mandated by Reserve Bank of India, and that's why it is where it is.

--------------------------------------------------------------------------------

Operator [116]

--------------------------------------------------------------------------------

We'll take that as the last question. I would now like to hand the conference over to Mr. Sunil Kakar for closing comments.

--------------------------------------------------------------------------------

Sunil Kakar, IDFC Limited - MD & CEO [117]

--------------------------------------------------------------------------------

Thank you all. Thank you for being patient. Just want to reinforce that all your concerns are valid, a and b, we are definitely working on each and every one of them. You have to have that. Understand, the time lines are a bit uncertain, but we will -- the objective is to monetize and give back the value as early as possible in the most tax-compliant and tax-efficient manner. There are uncertainties. We will be able to provide more color, as requested by many of you, hopefully within the next 1 or at most 2 quarters. Thank you very much.

--------------------------------------------------------------------------------

Operator [118]

--------------------------------------------------------------------------------

Thank you very much. On behalf of IDFC Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.