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IDFCB continues to report strong growth (25% YoY) and stable margins at 6.3%, led by better asset pricing, but lower other income and sticky operational cost (C/I ratio at 72%) caused a 7% miss on earnings estimate, with PAT at Rs7.5bn/RoA of 1.2%. Bank has recently raised capital via QIP (150bps on RWA) and should thus help contain funding cost, which would stabilize margins. However, checking run-away cost is paramount for sustaining higher RoA delivery. Also, amid rising stress in unsecured loans, we believe Bank needs to closely monitor any sign of stress and build sufficient specific provision/contingent buffer to limit future impact on the P&L. Factoring-in the relatively sticky operational cost and higher LLP amid rising stress in unsecured loans, we cut FY25/26E earnings by 7/16%, but expect the bank to deliver healthy RoA/RoE at ~1.3-1.4%/11-14% over FY24-26E (accounting for the recent capital raise) vs. 0.3-1.1%/3-10% over FY21-23. We retain BUY on the stock, with revised TP of Rs98/share (Rs96 earlier), rolling forward on 1.8x Sep-25E ABV (earlier, 1.7x Jun-25E ABV

Strong growth/stable margin, but opex remains elevated

IDFCB continues to report robust credit growth, at 25% YoY/4% QoQ, on the back of sustained acceleration in Retail, Rural and BB. The corporate book too has been on the up-move after the extended deceleration, thus supporting growth. Within Retail, the bank intends to boost the share of mortgages and, hence, the secured loans, in order to de-risk the portfolio; this will also improve the leverage and thus the RoE. Deposit growth was also resilient, at 39% YoY/11% QoQ. Despite the run-up in funding cost, Bank managed to report stable margins due to rising loan yields. Bank has recently raised capital via QIP (150bps on RWA) which should thus help contain funding cost, leading to stable margins. However, quelling the run-away cost (C/I ratio at an intense >70%) is paramount for sustaining higher RoA delivery.

NPA ratio continues to trend down, but Company needs to shore-up its <70% specific PCR and build some counter-cyclical buffers

IDFCB reported a slight increase in absolute GNPA of 4% QoQ, but better credit growth led to slight reduction in the GNPA ratio by 6bps QoQ to 2.1%. Specific PCR remains below 70% (at 68%), which we believe the bank needs to shore it up. Additionally, rising noise on stress build-up in unsecured loans would call for building counter-cyclical buffers, even if it hurts near-term profitability.

We retain BUY with revised TP of Rs98/share

Factoring-in the relatively sticky operational cost and higher LLP amid rising stress in unsecured loans, we have cut our earnings for FY25/26E by 7/16%, but expect the bank to deliver healthy RoA/RoE at ~1.3-1.4%/11-14% over FY24-26E (building-in the recent capital raise) vs. 0.3-1.1%/3-10% over FY21-23. We retain BUY with a revised TP of Rs98/share (Rs96 earlier) rolling forward on 1.8x Sep-25E ABV (earlier 1.7x Jun-25E ABV). Key risks: Macro slowdown hurting growth/asset quality, delay in opex improvement, and KMP attrition

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