IDFC First Bank up 5%, brokerages cheer highest ever quarterly profit

Axis Securities and CLSA have a ‘buy’ rating after IDFC First Bank doubled its net profit for the March quarter to Rs 803 crore

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IDFC First Bank shares surged over 5 percent on May 2 after the bank doubled its net profit for the March quarter to Rs 803 crore, which managing director and CEO V Vaidyanathan said was the “highest ever quarterly profit”.

Net interest income for the bank grew 35 percent year-on-year to Rs 3,597 crore from Rs 2,669 crore in Q4 FY22 and the core operating profit grew 61 percent YoY to Rs 1,342 crore, the lender said on April 29.

At 11.45 am, the stock was quoting at Rs 64.30 on the National Stock Exchange, up by 4.6 percent from the previous close. It was trading with volumes of 80 million shares, compared to its five-day average of 37 million shares, an increase of 112.33 percent. In the initial hour of trade, it had hit a high of Rs 64.55.

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On the back of the strong show of results, Axis Securities has given a “buy” rating to the stock with a target price of Rs 75. The broking firm projects a compound annual growth rate (CAGR) of around 24 percent in credit growth and 31 percent in deposit growth from FY23 to FY25.

It expects IDFC First Bank to witness RoA (return on assets) expansion to around 1.3 percent by FY25E against 1.1 percent in FY23, driven largely by stable margins of 6.2 percent, improving opex ratios, and moderating credit costs.

CLSA, too, has given a “buy” call on the stock and has raised the target to Rs 80 a share. “The bank has shown positive surprise in its net interest margins (NIMs) and is well positioned for growth with a healthy business momentum on both assets and liabilities,” it said.

The firm has also raised its FY24/25 estimates by 7 percent and 1 percent, respectively, to factor in the strong NIM outcome. The management told CNBC-TV18 that it expects to sustain margin at 6.3-6.4 percent.

Nuvama Institutional Equities has a “hold” rating on the stock with a target price of Rs 60. This is because of IDFC Limited’s impending merger with IDFC First Bank.

“We argue IDFC’s retail book on conversion to a bank is unseasoned, opex shall remain sticky as competitors invests aggressively, and deposit franchise is weaker than peers with premium rates being the key deposit driver,” analysts Mahrukh Adajania and Madhukar Ladha said.

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