IDFC First Bank Q1 Review: Jefferies Retains 'Buy' Despite Miss, Morgan Stanley Cites Muted Quarter

IDFC First Bank's first-quarter results have brought on a mixed response from Jefferies and Morgan Stanley, as they highlight both challenges and potential for recovery.

Jefferies maintains a 'buy' rating on the bank, with a target price of Rs 70, seeing value in its improving asset quality and a shift towards lower-cost deposits.

On the other hand, Morgan Stanley holds an 'equal-weight' rating, adjusting its target price slightly downwards to Rs 68 from Rs 70, citing a muted quarter with profitability pressures.

Jefferies notes that IDFC First Bank's first-quarter profit after tax of Rs 4.6 billion was below their estimates, primarily due to lower-than-expected credit costs. The brokerage highlights three key aspects: first, lower slippages and credit costs; second, other segments showing higher slippages due to challenging economic conditions; and finally, lower cuts in savings bank deposit rates leading to a margin contraction.

Jefferies believes that forward flow into microfinance loan book stress remains high, indicating ongoing pressure in the segment. Overall, the bank reported a 1% sequential decline in gross non-performing assets and a 20% sequential increase in net NPAs.

Jefferies expects credit costs to moderate to 2.2% of average gross NPAs in fiscal year 2026 and further to 1.8% over fiscal years 2027-28. The bank's decision to cut deposit rates at a slower pace has led to a 100 basis point improvement in deposit retention, particularly in savings deposits, which is viewed positively.

Morgan Stanley describes IDFC First Bank's first quarter as "muted," with earnings missing their estimates by 5%. They note a shortfall in financial results compared to consensus expectations.

While key positive aspects include strong loan and deposit growth, asset quality was negative due to elevated MFI stress, partly owing to seasonality. Morgan Stanley expects ROA to rebound from 0.4% in fiscal year 2025 to 1% in fiscal year 2027.

IDFC First Bank stock fell as much as 2.08% during the day to Rs 69.2 apiece on the NSE. It was trading 0.30% lower at Rs 70.4 apiece, compared to a 0.17% decline in the benchmark Nifty 50 as of 9:59 a.m.

It has declined 5.61% in the last 12 months and 11.32% on a year-to-date basis. The total traded volume so far in the day stood at 2.9 times its 30-day average. The relative strength index was at 31.6.

Fifteen out of the 27 analysts tracking the company have a 'buy' rating on the stock, seven recommend a 'hold,' and five suggest a 'sell,' according to Bloomberg data. The 12-month analysts' consensus target price on the stock is Rs 75.3, implying an upside of 6.5%.