Stock is up 58.88% in 3 months, buy this mid cap bank stock, brokerage sees 42% upside potential

Stock outlook and returns over the years

The current market price (CMP) of the shares is Rs 56.70 per share on NSE. It is trading down 0.18% from its previous close. The stock reached its 52-week high at Rs 59.45 on October 24, 2022 and its 52-week low at Rs 28.95 on June 22, 2022, respectively.

The stock over the past month has jumped 19.71%, while over the past 3 months it has given positive returns of 58.88%. Over the past year it has given positive returns of 8.5% and in 3 years it has given positive returns of 36.37% to shareholders. However, over the past 5 years, the stock has given negative returns of 0.26%.

Q2FY23 results

Q2FY23 results

Double-digit ROE driven by strong PAT growth driven by loan growth

IDFCFB recorded strong growth of 6% QoQ and 26% YoY in the loan portfolio during the quarter. Both the personal and business segment contributed to the growth. In the retail segment, home loans, auto loans, credit cards, and digital and gold loans were up more than 10% on a Q-oQ basis. Deposits climbed 9% and 37% on a quarterly and annual basis, respectively. With continued improvement in asset quality, the company’s ROE improved from ~3% in Q2FY22 to ~10% in Q2FY23. PAT jumped 17% QoQ and 266% YoY in Q2FY23.

Strong growth in the loan portfolio and deposits

IDFCFB recorded strong growth of 9% QoQ and 37% YoY in deposits, driven by an increase in CASA deposits of 12% QoQ and 37% YoY during the quarter. Despite lower interest rates, the CASA ratio remained stable at 51.3% in Q2FY23. Within the loans portfolio, credit cards and digital and gold loans grew by a staggering 119% and 134% YoY in Q2FY23, respectively. This growth is due to a weaker base. The contribution of digital and gold loans to the total loan portfolio increased from 4% in Q2FY22 to 7% in Q2FY23. The target to reduce the infrastructure finance portfolio is on track, down from 9% in Q2FY22 to 4% in Q2FY23.

Improvements

Improvements

Improved operating ratio

IDFCFB improved its cost/income ratio from 77.3% in Q2FY22 to 73.3% in Q2FY23. Management expects the cost/income ratio to decline due to the normalization of operating costs, the repayment of high cost liabilities and traction in the credit card industry.

Improved asset quality

IDFCFB shows continuous improvement in asset quality. The large and growing portion of the portfolio, i.e. retail and commercial business financing, which constitutes 75% of the loan portfolio, has a gross NPA of around 2% in Q2FY23. Asset quality in the corporate portfolio is also strong, with an adequate PCR of 98%. The Bank expects the infrastructure portfolio to wind down and the gross retail NPA to fall below 2%.

Yield ratios are increasing on track

Yield ratios are increasing on track

As directed by management, to achieve double-digit ROE and 1% ROA by the end of FY23. The Bank achieved 10.1% ROE and 1.1% ROA in course of the quarter. The improvement in yield ratios is due to a 32% year-over-year growth in the NII and an 11% decrease in the provision. This led to a gigantic 266% increase in PAT during Q2FY23. The Bank expects yield ratios to improve further due to improved operating leverage.

View & Estimate

View & Estimate

“We maintain our view on IDFC First Bank Ltd with a BUY rating and a target price of Rs. 81 (2.5x FY24E Adj. Book Value). We expect the Bank to increase its loan book to 20-25% with a stable NIM of 6% Normalizing asset quality will lead to fewer incidents and better profitability growth, leading to improved yield ratios,” the brokerage said.

Disclaimer

Disclaimer

The stock was selected in the Keynote Capitals brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.