IDFC First Bank Q1 profit surges 61% YoY to Rs 765 crore, stock jumps 2%

Shares of IDFC First Bank jumped nearly 2 percent in early trade on July 31 post robust Q1 results. At 9:45 am the IDFC First Bank stock was trading 1.43 percent higher at Rs 85.20 on NSE.

The private sector lender recorded a 61 percent on-year growth in profit at Rs 765 crore for the June quarter despite higher provisions, as growth in core operating income was healthy. The bank reported its earnings on July 29. Net interest income for the quarter rose 36 percent to Rs 3,745 crore compared to year-ago period, with net interest margin expanding to 6.33 percent from 5.77 percent during the same period.

Asset Quality Improves

Gross non-performing assets (GNPAs) as a percentage of the total loans were 2.17 percent, lower from 3.36 percent in the year-ago period and 2.51 percent in the previous quarter. The net NPA ratio was 0.70 percent, down from 1.3 percent in the same quarter of the previous year and 0.86 percent in Q4FY23. In absolute terms, gross NPAs improved to Rs 3,603.38 from Rs 3,884.45 crore in the March quarter and Rs 4,354.75 crore in the year-ago period, the bank stated.

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The amount of net NPAs stood at Rs 1,149.03 crore, down from Rs 1,653.82 crore in the year-ago period. Gross NPAs in retail, rural and SME finance improved to 1.53 percent from 2.12 percent in the year-ago quarter and 1.65 percent in the January-March period. Net NPAs were at 0.52 percent, down from 0.93 percent in the year-ago period and 0.55 percent in the previous quarter.

Collection efficiency for urban retail businesses continues to remain high at 99.5 percent. The provision coverage ratio went up to 83.12 percent from 73.13 percent in the year-ago period. The provision refers to the amount a bank needs to set aside to cover the losses from a loan account. When an account turns into an NPA, the provisions required will equal the full loan amount. ​

Deposits

Customer deposits were up 44 percent on-year at Rs 1.49 lakh crore in the June quarter. Retail deposits constituted 77 percent of the total customer deposits, growing 51 percent on-year to Rs 1.14 lakh crore. Current account saving accounts (CASA) deposits grew 27 percent on-year to Rs 71,765 crore. The CASA ratio was at 46.5 percent, down from 50 percent in the year-ago period. This was on the back of a shift from savings accounts to term deposits due to prevailing high-interest rates.

Fundraise

The board approved raising funds up to Rs 3,000 crore during one-year period. The funds will be raised through the issuance of equity shares and/or other equity-linked securities, in one or more tranches, through one or more permissible modes, including but not limited to private placement, Qualified Institutions Placement, or a combination of these, the bank said. The board also approved the re-appointment of Vishal Mahadevia as a non-executive non-independent director of the bank for three years. The tenure commences December 18, 2023.

Brokerage Views

Brokerage firm Motilal Oswal has given a ‘buy’ rating to the IDFC First Bank stock with a target price of Rs 100 in a report dated July 30, 2023. Thus signifying a potential upside of 19 percent from the current market price of Rs 84. The firm further believes that the earnings of the bank were boosted by robust fee income and its asset quality remained steady.

Morgan Stanley has given an ‘equal weight’ rating to the IDFC First Bank with a target price of Rs 80 per share. The firm further stated that the reported profit after tax (PAT) by the bank was better than estimates driven by lower credit costs and strong core fees. The net interest income was in line with expectations.

CLSA has given an ‘underperform’ rating to the IDFC Bank with a target price of Rs 85. The brokerage house believes that lowering the cost to income is key for further return on equity (RoE) improvement.

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