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Motilal Oswal Report
IDFC First Bank Ltd. has been on track to deliver sustained improvement in earnings. The bank has built a strong retail franchise with more than 70% mix of retail assets and has delivered on most parameters under Guidance 1.0, barring the cost/income ratio, on which the bank suggests a strong progress from H2 FY25.
Management remains confident on delivering industry-leading business growth while focusing on building a diversified retail portfolio. Cost ratios have been sticky as the bank continued to make significant investments in the business, expediting the transition journey from an NBFC into a bank with robust liability franchise and a well-diversified loan portfolio with top notch digital capabilities.
However, management has suggested for a continued improvement in cost ratios, mainly from H2 FY25E, as operating leverage improves and the bank follows a branch-light distribution and sourcing model.
We thus estimate IDFC First Bank to deliver a pre-provision operating profit/profit after tax compound annual growth rate of 35%/30% over FY24-26E leading to an return on asset/return on equity of 1.3%/13.2%. Reiterate Neutral with a target price of Rs 88 (premised on 1.6 times FY26E adjusted book value).
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