IDFC First Bank share price: ICICI Securities maintains a buy rating with revised price target of Rs 52 from Rs 45 earlier

IDFC First Bank posted decent Q3 FY21 results with improvement in operating parameters and sequential rise in loan growth. On the asset quality front, there was little disappointment but long-term prospects remain intact. NII was up 13.7% YoY, 5.1% QoQ to Rs 1744 cr. NIMs expanded QoQ by 8 bps and 79 bps YoY to 4.65% despite interest reversals due to NPAs, supported by sharp rise in CASA deposits. Other income for the quarter jumped 31.1% YoY Rs 759 cr. Fee income increased 33% YoY to Rs 582 cr. Provisions for the quarter were at Rs 482 cr, up 123% QoQ owing to rise in proforma NPA. PAT was at Rs 129.5 cr for Q3 FY21.

On the asset quality front, headline GNPA, NNPA declined from 1.62%, 0.43% to 1.33%, 0.33%, respectively for IDFC First Bank; benefitted by standstill status. On a proforma basis, GNPA, NNPA ratio showed a steep rise sequentially and was up 231 bps, 144 bps to 4.18%, 2.04%, respectively. In the retail segment, proforma GNPA increased from 0.79% to 3.88% QoQ. IDFC First bank is holding a decent amount of provisions against the same. Collection efficiency for standard loans was at 98% of pre-Covid levels. Restructured pool was at 0.8% of total funded assets. Restructuring request was at 1.8%.

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IDFC First bank has made additional provisions related to Covid-19 amounting to Rs 390 cr during the quarter. As a result, the bank now has total Covid provisions of Rs 2165 cr. The bank has provisions of 25% to total outstanding for a telecom exposure. Provision coverage including the general provision, Covid-19 provision, specific provisions on NPAs was 309% on reported NPA and 99% of proforma NPA.

In terms of business, IDFC First bank seems to be on track to its long-term objectives of shifting loan mix in retail favour and higher retailization of liability franchisee. The bank has been posting improving profitability in the past four quarters. Slippages came in higher in Q3 FY21 owing to exposure to MSME segment, which was impacted by the pandemic. This is seen keeping credit cost elevated in the next two to three quarters.

With a prudent approach on the provisioning front and improving funding profile, we believe return ratios are set to improve meaningfully in the medium to long term with RoAs set to reach 1%. Thus, ICICI Securities values the bank at 1.6x FY23E ABV with a revised target price of Rs 52 from earlier target of Rs 45. ICICI Securities maintains BUY rating on IDFC First Bank.