Buy IDFC First Bank; target of Rs 36: ICICI Direct

ICICI Direct's research report on IDFC First Bank

IDFC First posted decent results for Q2FY21 with improvement in some operating parameters. Overall loan growth remained flattish owing to rebalancing of the portfolio but long term prospects remain intact. NII increased 21.8% YoY, 2.1% QoQ to Rs 1660 crore on account of expansion in NIM, which increased 4 bps QoQ, 114 bps YoY to 4.57%. Other income declined 51.7% YoY. This de-growth can be attributed to 19% drop in fee income due to lower loan origination as a result of low business activity due to pandemic. The bank sold off entire exposure to one of the stressed HFC through secondary market transaction, booked a loss of Rs 463 crore in trading income and released existing provision of Rs 460 crore. PAT for the quarter was at Rs 101 crore vs. Rs 94 crore QoQ and loss of Rs 680 crore YoY.

Outlook

The bank seems to be well on be on track to its long-term objectives of shifting loan mix in retail favour and higher retailisation of liability franchisee. With a prudent approach on the provisioning front, moving away from risky sectors and improving funding profile, we believe return ratios are set to improve meaningfully in the medium to long term with RoAs set to reach 1%. Thus, we value the bank at ~1.1x FY22E ABV with a revised target price of Rs 36 from Rs 34 earlier. We maintain our BUY recommendation.

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