IDFC First Bank Q3 Results Review - Makes Fresh Long-Term Guidance: Yes Securities

Yes Securities Report

Long-term loan growth guidance materially lags long-term deposits growth guidance likely owing to high loan-to-deposit ratio: IDFC First Bank Ltd. has stated that, over FY24-29, advances are to grow at a compound annual growth rate of 20.3% whereas customer deposits are to grow at a CAGR of 24.8%. We believe this differential of about 450 basis points in the two long-term CAGR figures is likely a natural requirement, among other reasons, of normalising the loan-to deposit ratio, which is at 102%, the highest in our coverage universe, bar HDFC Bank Ltd.

IDFC First Bank has guided for broadly stable net interest margin, which we think would be the result of mix change being offset by the aforementioned loan-to-deposit ratio unwind: It is to be expected that retail loans would outpace wholesale loans, which would remain relatively de-focused. For the quarter, in addition to yield enhancement via loan mix change, legacy high-cost borrowings declined Rs 14 billion and stand at about Rs 136 billion. An incremental reduction of Rs 13 billion is expected to play out in Q4 FY24.

We maintain a less-than-bullish ‘Add’ rating on IDFC Bank Ltd. with an unchanged price target of Rs 100: We value the bank at 2.0 times FY25 price/book value for an FY24E/25E/26E return on equity profile of 11.1%/12.4%/13.4%.

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