Buy IDFC FIRST Bank Ltd For Target Rs.70 - ICICI Direct
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Business, earnings momentum remains strong…
About the stock: IDFC First Bank was formed by the merger of the erstwhile IDFC Bank and Capital First in 2018. Retailisation of its business has been the key focus.
* Retail funded assets form ~67% of total funded assets
* Branch network is at 707 as on December 2022
Q3FY23 Results: IDFC First Bank reported a strong performance
* GNPA down 22 bps QoQ to 2.96%; NNPA down 6 bps QoQ to 1.03% ? NII up 27.3% YoY, NIMs up 38 bps QoQ to 6.36%, C/I at ~72%
* Provisions up 6.1% YoY; PAT at | 604.6 crore, up ~2x YoY
* Funded assets up 25.3% YoY at | 1.52 lakh crore, retail grew 36% YoY
What should investors do? IDFC First Bank’s stock price rose ~70% in the past six months as balance sheet strength improved. Continued focus on healthy credit growth coupled with a gradual improvement in efficiency and liabilities mix to enable sustainable RoA at ~1.3-1.5% and, thus, drive valuation.
* Thus, we retain our BUY rating on the stock
Target Price and Valuation: Rolling to FY25E, we value IDFC First Bank at ~1.5x FY25E ABV and maintain target price of | 70 per share.
Key triggers for future price performance:
* Healthy business growth with primary focus on retail segment and steady asset quality should aid 22-25% growth and drive RoA to ~1.3-1.5%
* Gradual decline in CI ratio remains key to drive further re-rating in valuation. The management has guided CI ratio at ~65%
* With adequate provisions buffers in place, credit cost to be under control
* Replacement of legacy borrowing with liabilities at competitive cost remains key
Alternate Stock Idea: Apart from IDFC First, in our coverage we also like CSB Bank
* CSB Bank has shown a meaningful transformation in its overall performance in the past few years and currently focuses on gold and SME loans
* BUY with a target price of | 275
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