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Resilient franchise amidst yearly return shortfalls

IDFC First Bank (IDFCBK) reported 1QFY25 numbers with lower opex and higher provisions. NII for the quarter came in line at Rs47bn (up +25%/+5% YoY/QoQ) in line with our expectations. Other income witnessed an increase of +15%/down 4% YoY/QoQ. However, opex came in at Rs44.5bn (up +30%/5.4% YoY/QoQ) below our expectations. CTI for the quarter came in at 70.5% (down 213bps sequentially), respectively. Resultantly, PPoP came in at Rs18.5bn, up +25%/up +10.5% YoY/QoQ growth and +12% above our estimates. However, credit cost for the quarter was much higher at Rs9.9bn vs. Rs7.2bn in 4QFY24 (2.2%Q1FY25 Vs 1.7% in Q4FY24 of avg advances). Hence, PAT came in at Rs6.4bn (down 12% YoY /QoQ) vs. our expectations of Rs6.5bn. GNPA increase sequentially and came in at 1.90% which is higher by 12bps QoQ, NNPA at 0.60% which also flattish sequentially. CRAR came in at 15.59%. IDFCBK has been consistently missing its guidance on achieving improvement in return profile and we see FY25 as no different hence we cut our target multiple to 1.7x on FY26 ABV and arrive at a revised TP of Rs93 (Rs106). Maintain BUY.

Lower opex leads to higher PPOP

NII for the quarter came in line at Rs47bn (up +25%/+5% YoY/QoQ), marginally exceeded our estimated NII of Rs46.1bn primarily due to better product mix – Consumer (29%/+5% YoY/QoQ) and Rural Finance (+18%/~3% YoY/QoQ). CTI came for the quarter lower at 70.5% (PQ: 72.7% PY: 71.2%) due to lower Opex. PPoP came at Rs18.5bn, (+25% YoY/10.5% QoQ) higher than our estimates. PAT lower at Rs6.4bn due to higher provision cost for the quarter which came in at Rs9.9bn vs. Rs7.3bn in 4QFY24 primarily due to MFI (CGFMU cover taken on JLG). Credit cost on avg. advances (annualized) was at 2.0% Vs.1.5% in Q4FY24.

Advances growth led by consumer segment

Gross advances showed robust growth, increasing by an impressive 21% YoY /4.1% QoQ, reaching at Rs2.05tr. Further, this growth was driven by retailisation of advances. Consumer segment grew by 29% and 5.4% YoY/QoQ. The infrastructure loan book reduced by 29% on YoY and fattish sequentially basis. GNPA for the quarter is higher by 12 bps at 1.90% and NNPA remain same at 0.60%.

Deposit growth continues to impress at 7% QoQ

On the liability front, total deposits grew by +39%/7% YoY/QoQ; the total TDs grew +39%/8% YoY/QoQ respectively. CASA decline by 177 QoQ at 45.5% (PQ: 47.2% PY: 46.5%) – still impressive compared to peers. While the LCR ratio came in higher at 118% vs. 114% in 4QFY24. Management indicated they are confident that recent draft LCR guidelines impact would be cushioned by strong retail deposit franchise.

Return profile gets delayed to FY26

IDFCBK has been consistently delivering on balance sheet front despite headwinds in macro environment. However, on opex front the improvement has been elusive. Add to that, this year it is expected the bank to have higher provisioning cost which would impact the return profile of the company. Therefore, we believe the expected return profile from investors will only be attained by the bank post FY26 and hence we cut our target multiple to 1.7x (earlier 2x) on FY26 ABV and arrive at a revised TP of Rs93 (earlier TP Rs106).

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