Most brokerages give 'thumbs up' to IDFC First Bank post-Q4 results; see up to 30% upside

IDFC First Bank shares hit a 52-week high of Rs 65.20 apiece on the BSE on May 2, 2023, after the company during the weekend reported a strong set of numbers for the March quarter. While the lender's net profit for the January-March period (Q4FY23) more than doubled, the same for the full fiscal jumped multifold to Rs 2,437 crore from Rs 145 crore reported in FY22.

Net profit for the quarter under review increased to Rs 803 crore, up 134 per cent YoY against Rs 343 crore reported in the corresponding quarter of the previous fiscal, driven by strong growth in core operating income. Net Interest Income (NII) for the quarter grew 35 per cent YOY from Rs 2,669 crore in Q4-FY22 to Rs 3,597 crore in Q4-FY23. The bank's asset quality also improved on a YoY basis. 

IDFC First Bank, as per Motilal Oswal Financial Services (MOFSL), is entering a phase of strong loan growth as the drag from the wholesale book continues to moderate. This will be aided by a strong pickup in profitability due to the replacement of high-cost borrowings, better cost trends and controlled credit costs. Further, the brokerage notes that the bank has invested well in digital capabilities, branch and product expansion and has a presence across retail products. Cost ratios are elevated but will moderate as scale benefits come into effect, while the retirement of legacy high-cost borrowings will aid NII growth, it says.

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Taking these into consideration, the analysts at MOFSL have maintained a "BUY" rating on the stock with a target price of Rs 75 (up 22 per cent from Friday's close). The brokerage estimates a 31 per cent earnings CAGR over FY23-25 and RoA/RoE of 1.3 per cent/13.5 per cent in FY25. RoA stands for return on assets and RoE is an acronym for return on equity. 

Foreign brokerages are also bullish on the stock. CLSA maintains "BUY" with a target price of Rs 80. Morgan Stanley has upgraded the stock to Equal-weight from Underweight. It also revised the target price upwards to Rs 70 from Rs 55, earlier. 

Meanwhile, Nuvama Wealth recommends the stock to "Hold" and has set a target price of Rs 60 as it believes the competition is too high. "Our RoA forecast for FY25 of 1.2 per cent is lower than the guidance of 1.5 per cent because we argue IDFC’s retail book on conversion to a bank is unseasoned, opex shall remain sticky as competitors invest aggressively, and deposit franchise is weaker than peers with premium rates being the key deposit driver," the brokerage said in an earnings review note.