Neutral IDFC First Bank Ltd for the Target Rs.80 by Motilal Oswal Financial Services Ltd
Other income drives earnings
Asset quality stress persists; Business growth robust
* IDFC First Bank (IDFCFB) reported a 1QFY26 PAT of INR4.6b (-32% YoY), a significant beat driven by one-off bond gains.
* NII was up 5% YoY/ flat QoQ at INR49.3b (in line). NIM moderated 24bp QoQ to 5.71% (in line), largely due to the repo impact, asset mix change (including a sharp dip in the MFI business), and decline in investment yields.
* Other income grew 37.5% YoY/17.5% QoQ to INR22.3b (20% beat). Opex was up 11% YoY/down 1.4% QoQ to INR49.2b (in line). The C/I ratio dipped to 68.7% due to higher treasury gains, though it remains elevated.
* Loan book grew 20.3% YoY (4.5% QoQ), while deposits continue to grow at a faster pace at 26.4% YoY/5.1% QoQ. IDFCFB’s CD ratio thus declined to 92.0% from 92.5% in 4QFY25.
* The bank’s GNPA/NNPA ratio increased 10bp/2bp QoQ to 1.97%/0.55%. The PCR ratio was stable at 72.3% for the quarter.
* We raise our earnings by 11% for FY26E and estimate FY27 RoA/RoE at 1.2%/14.4%. We reiterate our Neutral rating with a TP of INR80 (premised on 1.7x FY27E ABV).
CD ratio eases to 92%; margin moderates 24bp QoQ
* IDFCFB reported a 1QFY26 PAT of INR4.6b (32% YoY decline), a significant beat due to one-off bond gains.
* NII was up 5% YoY/flat QoQ at INR49.3b (in line). NIM moderated 24bp QoQ to 5.71% (in line). The bank’s provisions were elevated, up 14% QoQ to INR16.6b (9% higher than MOFSLe).
* Other income rose 37.5% YoY/17.5% QoQ to INR22.3b (20% beat). Opex was up 11% YoY/down 1.4% QoQ to INR49.2b (inline). The C/I ratio dipped to 68.7%, though it remains elevated. Treasury income was INR4.9b vs INR1.9b in 4QFY25. PPoP thus grew 19% YoY/24% QoQ to INR22.4b (22% beat). Management expects opex growth to be ~11–12% YoY.
* On the business front, net advances grew 20.3% YoY/4.5% QoQ, led by 4.3% QoQ growth in retail finance and 8% QoQ growth in business finance. Within retail, growth was led by LAP (8% QoQ) and credit cards (7.4% QoQ). The share of consumer & rural finance was ~67.7% as of 1QFY26.
* Deposit growth was robust at 26.4% YoY/5.1% QoQ, with the CASA mix increasing 110bp QoQ to 48%. The CD ratio dipped 52bp QoQ to 92%.
* The GNPA/NNPA ratio increased 10bp/2bp QoQ to 1.97%/0.55%. The PCR ratio was stable at 72.3%. Gross slippages increased to INR24.9b from INR21.8b in 4QFY25. SMA book stood at 1.01% vs. 1.07% in 4QFY25.
* Excluding MFI and one legacy infrastructure toll account, credit costs increased to 2.0% in 1QFY26 from 1.8% in FY25 on account of seasonality. Management expects FY26 credit costs to be ~2.0-2.05%.
Highlights from the management commentary
* NII grew 5.1% YoY because the repo rate cut was passed on to eligible customers, and the asset mix changed, including a reduction of MFI.
* On the other hand, term deposit repricing takes ~9 to 12 months to take effect. NII growth is expected to improve in 2HFY26.
* Gross slippages increased due to slippages of INR1.08b of an ATM service provider company in 1QFY26, which has been fully provided for.
* Management expects margins to be ~5.8% in 4QFY26.
Valuation and view: Reiterate Neutral with a TP of INR80
IDFCFB reported an earnings beat driven by healthy other income (due to one-off bond gains). However, NIM moderated 24bp QoQ due to repo cut and asset mix change, and the bank expects this to further go down in 2Q but remain ~5.8% in 4QFY26. On the business front, deposit traction continued to remain robust, with the CASA mix increasing to 48%. The growth in advances also remained healthy, led by steady traction across retail and business finance. Asset quality deteriorated while the SMA book was under control at 1.01%. We estimate the C/I ratio will remain at 69.6% by FY26 and at 66.4% by FY27, primarily as the bank will continue to mobilize deposits at a healthy run rate. We raise our earnings estimate by 11% for FY26E and estimate FY27 RoA/RoE at 1.2%/14.4%. Reiterate Neutral with a TP of INR80 (premised on 1.7x FY27E ABV)
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
