IDFC First Bank Stock Research Report by HDFC Securities
Sector: Bank – Private
CMP Rs. 66.8, Target Rs. 79.5 (19% upside potential)
Target Period: 12 Months
IDFC First Bank Stock Research Report:
The retailisation strategy has worked out well for IDFC First Bank (IDFCFB) and it has helped put in place a strong base to grow on. Retail funded assets have increased to ~69% of total funded assets and CASA ratio has stabilized ~50% in FY23. Post the pandemic, the bank is looking to benefit from the demand recovery. It is rapidly expanding its branch network and targeting 25-30% loan book growth. With operating leverage coming in and replacement of higher cost borrowing with lower cost deposits, NIM is likely to expand and return ratios could improve. We expect this phenomenon to continue to play out over the next few years, which will result in increase in overall profitability and RoE/RoA. It has guided for credit costs of less than 1.5% in FY24. The new retail products would provide strong support to NIMs and reduction in borrowing and credit costs would aid PAT expansion.
Along with retail banking, a unique business model is also a great moat for IDFC First Bank. The business model is supported by scalability, superior technology touch, robust growth on a favourable base (offering strong returns to shareholders), keeping customer experience at the centre of the business model and supporting it by exceptional corporate governance. IDFC First Bank is expected to turn out to be a dark horse in the retail banking space, as the bank is fundamentally very well structured to deliver outperformance in the long run.
Valuation & Recommendation:
We expect advances of the bank to increase at 22% CAGR over FY23-FY25E. Improvement in profitability would drive RoA to ~1.3% by FY25E. We have valued the Bank at 1.6x FY25E ABV for a base case target of Rs 73 and 1.75x FY25E ABV for a bull case target of Rs 79.5 over 2-3 quarters. Investors can buy the stock in Rs 66-68 band and add on dips in Rs 59-60 band (1.3x FY25E ABV).
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