IDFC First Bank's stock has de-rated in the last few months amid pressure on RoAs (down to <0.5% from >1% earlier) and asset quality. However, the brokerage believes current RoAs (~0.4% in Q3 FY25 and ~0.5% in FY25E) seem to have broadly bottomed out – benefitting from operating leverage and easing credit costs. Valuations at ~1x FY27E ABV suggest limited downside; separately, strong potential capital infusion (pro forma CET1 at ~16.5%) shall enhance the bank's buffer and improve visibility on superior growth/operating leverage.
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ICICI Securities Report
We upgrade IDFC First Bank Ltd. to Buy with a revised target price of Rs 75, as the large proposed capital infusion (Rs 75 billion) improves visibility on superior loan growth/operating leverage (without any material dilution in book value) topped with inexpensive valuations.
The announced preferential infusion to Warburg and ADIA should boost the bank's CET1 by ~280bps, catapulting its pro forma CET1 to ~16.5%. With a meaty share of fixed rate loans, at 60–65% of overall, ~32% share of wholesale TD/borrowings and an additional ~30% share of high-rate savings in overall funding, IDFC First Bank seems well placed on NIM and could surprise positively.
MFI slippages have been elevated and could rise further in the near term, but the share itself is receding (now down to 4.8% versus 7.2% YoY). Ex-MFI, gross slippages have been stable (though elevated) and are a key monitorable; but improved disclosures and contained SMA figures along with an improving overall asset quality environment provide reasonable comfort.
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