Buy IDFC FIRST Bank; target of Rs 95: ICICI Securities

ICICI Securitie's research report on IDFC FIRST Bank

IDFC First Bank (IBFCFB) has reported a broadly in-line set of numbers with strong business growth and better cost income, though higher credit costs (as guided) weighed on PAT (INR 6.8bn) and RoA (down 12bps QoQ to 91bps). NIM was down 13bps QoQ to 6.22%, mostly on higher growth in investment and rise in LCR (to 118% vs. 114% QoQ). Deposits growth (36% YoY) continues to be among the highest across peers and IDFCFB should sustain deposits growth at >2x system growth, in our view. Loan/revenue growth is likely to remain strong at 22–23% YoY, which coupled with easing opex growth (20% YoY) should yield an improving cost income trajectory for FY24–26E. Rise in credit costs, as guided earlier, is mostly driven by MFI loans (6% of overall loans). SMA 1+2 book has risen marginally to 1.01% vs. 85bps QoQ. Credit costs are likely to ease in H2FY25 given short tenure of MFI loans and FLDG coming in.

Outlook

Vintage analysis for month on book (MOB) loans suggests a sharp improvement in 30dpd behavior in the post-Covid book (vs. pre-Covid book). CET 1, including recent capital infusion and interim profits, stood at a comfortable 14.67%. Our estimates are broadly unchanged and we see industry-leading deposits/PAT growth for FY24–26E. We maintain BUY with an unchanged TP of INR 95, valuing the stock at 1.65x FY26E ABV. As detailed here, (link), our target multiple is higher than estimated RoA (1.3% for FY26) factoring-in industry-leading deposits growth (2x of system), improving RoA and strong PAT growth. Key risks are higher-than-expected rise in delinquencies impacting profitability. We would also be monitoring deposits traction post the recent tweak in the rates/buckets.