Add IDFC First Bank Ltd for the Target Rs 85 by Emkay Global Financial Services Ltd
IDFC First Bank reported a strong PAT of Rs10.8bn (ROA: 1.0%), significantly ahead of expectations, driven by higher NII and other income (4%/8% above estimates) and lower provisions (12% below estimates). Credit growth remained robust at 21% yoy/5% qoq, while NIM improved 3bps qoq to ~6.0% on a 4bps decline in COF. The management expects COF to be broadly stable at ~6%, while normalization of the investment book and growth in lower-yielding segments could moderate margins (FY27 NIM guided at ~5.8%). The GNPA ratio continues to improve to 1.5%. The bank received Rs5.15bn under the CGFMU guarantee scheme, which was utilized toward building contingency provisions. On ECL transition, the management expects the impact on CRAR to be broadly neutral. The bank remains confident of sustaining healthy credit growth and maintaining ~500bps of positive operating jaws (income growth > cost growth), supporting further improvement in the C/I ratio. This, coupled with lower credit cost (guidance revised down to 150–160bps from 170–180bps earlier), supports a gradual ROA improvement. We expect the bank to report ROA of 0.8-1.2% over FY27-29E and maintain ADD, while revising our TP by ~13.3% to Rs85 (from Rs75 earlier), implying 1.3x Jun-28E ABV.
Healthy growth momentum; margins expand qoq
IDFCB reported strong credit growth of 20.9% yoy/5.0% qoq, led by retail, MSME, and corporate book. In retail, the bank saw healthy traction in LAP, consumer loans, gold loans, and credit cards, while the MFI book remained flat qoq. Deposits remained robust, growing 17.7% yoy/5.9% qoq with the CASA ratio improving 102bps qoq to 50.8%. NIM expanded 3bps qoq to ~6.0%, supported by a 4bps decline in cost of funds. Adjusting for one-off factors, including an 8bps day-count benefit in 4QFY26 and a 6bps interest on IT refund benefit in 1QFY27, underlying NIM improved 5bps qoq, from 5.85% to 5.90%. The management expects COF to be broadly stable at ~6%, while moderation in the investment book and growth in relatively low-yielding segments (ROI accertive) could moderate margins; it expects FY27 NIM at ~5.8%
GNPA continues to improve; guides for credit cost of 150-160bps
Gross slippage was stable at Rs17.4bn/2.8% of loans, while higher recoveries and writeoffs led to a 10bps qoq improvement in the GNPA ratio to 1.5%. The SMA (1+2) book was stable at 0.77%, with the MFI SMA ratio improving to 0.71%. The bank received Rs5.15bn under the CGFMU guarantee scheme, which was utilized toward building contingency provisions. The management expects the impact of ECL on CRAR to be broadly neutral, while credit cost guidance was revised down to 150 160bps from 170 180bps earlier.
We retain ADD on IDFCB with TP of Rs85
We largely maintain our FY27 estimates and expect the bank to report ROA of 0.8-1.2% over FY27-29E, driven by lower opex and easing credit costs. We maintain ADD while revising our TP by ~13.3% to Rs85 (from Rs75 earlier) implying 1.3x Jun-28E ABV.
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