During the muhurat trading hour on Monday, IDFC First shares clocked a new 52-week high of ₹59.40 apiece on BSE. The stock ended at ₹58.35 apiece up by 1.83%.
Year-to-date, IDFC First shares have soared over 17.5% on Dalal Street. From its 52-week low of ₹28.95 apiece which was recorded on June 22 this year, IDFC First shares emerge as a multi-bagger by rising over 101.5% in a little over 4%.
There is more potential for upside in IDFC First Bank shares.
IDFC First Bank's Q2FY23 numbers were strong with a growth of 266% in profitability to ₹556 crore compared to a profit of ₹152 crore in the same period last year. The PAT was driven by robust growth in core operating income. Further, net interest income (NII) climbed by 32% to ₹3,002 crore in Q2FY23 from ₹2,272 crore in Q2 of FY22. Net interest margin expanded to 5.98% in the quarter under review from 5.83% in Q2FY22 and 5.89% in Q1FY23.
In a report, Sagar Shah Senior Research Analyst at Phillip Capital said, "Company’s Q2FY23 was as per expectations led by 25% growth in funded assets and improving asset quality with GNPA at 3.18% and NNPA at 1.09%," adding, "Net interest margins were healthy at 5.98% (Annualised) led by solid traction in customer deposits, higher yield on advances and healthy growth in funded assets."
Further, Shah's note added, "Bank has further increased its PCR at the bank level to 76.49% thus further strengthening its balance Sheet. Infrastructure corporate book has further gone down to ₹5992 Cr which is 4% of total funded assets. Corporate book saw healthy 20% growth which provides a nice balance to the overall book."
As of September 30, 2022, the bank's gross NPA improved to 4.27% from 3.36% in Q1FY23 and 3.18% in Q2FY22. Net NPA came in at 2.09% in Q2FY23 compared to 1.30% in Q1FY23 and 1.09% in Q2FY22. While the bank's funded assets jumped by 25% yoy to ₹1,45,362 crore in the latest quarter.
Also, the bank managed to achieve 10% ROE and 1.07% ROA in Q2FY23 itself which it was guided to achieve in Q4FY23.
IDFC First's management expects to maintain net interest margins to remain around 6% going ahead led by solid traction in Retail funded assets. Further, the bank expects to completely run down the infrastructure loan book to 0 in the next few years which is 4% of gross funded assets as on September 30, 2022. Also, the lender expects ROE and ROA to improve from here on driven by improvement in operating leverage, the stock brokerage's note highlighted.
On the outlook ahead, Shah's note said, "With incremental tailwinds favoring the sector we believe, banking sector is well poised to outperform in coming years led by healthy credit growth and macros improving though any macro uncertainty will be a key element to watch out for. We believe IDFC First Bank will do well amongst the Tier 2 banks given its strong ability to garner deposits, healthy disbursements, and manage its asset quality well."
Shah's note said, "We revise its PPOP and NPAT upwards over FY22 – FY24E to factor in higher yield on advances and higher cost on funds. We expect bank’s total income and PPOP to grow at a CAGR of 23% and 41% respectively from FY22 – FY24E. AT CMP, bank is trading at 1.4 x Adj BV FY24E factoring in most of the positives but we believe improving return ratios would drive rerating of the stock. We recommend a ‘BUY’ rating on the stock with a target price of ₹66, implying 15 % upside from current levels."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
