idfc first bank stock target: Axis Securities initiates coverage on IDFC First Bank, sees 31% upside – Blue Barrows

Confident that the company would grow profitably from hereon supported by its successful transition from infrastructure lending to building a diversified retail-focused loan book, Axis Securities initiated coverage on with a buy rating and a target price of Rs 70, implying an upside of 31% from the current market price of Rs 53.3.

The company has reduced its high-risk infrastructure book to 5% of the loan book in FY22 from 37% in FY18 and the management has guided that the same is expected to reduce further, the brokerage said in a report.

“We expect the loan book to report healthy growth of 20-25% over FY23-25E with a key focus on the retail segment and a slightly stable-to-lower growth in the corporate segment,” Axis Securities said.

The bank’s cost of borrowing was reduced to 5.1% in FY22. Currently, with a strong CASA ratio of 50.04% (Q1FY23), the brokerage finds

First in a good position to grow with a reasonably sustainable level of cost of borrowing.

“We expect the bank to continue its journey moving forward to further augment its ROA/ROE by leveraging powerful unit economics, incremental retail lending business at an ROE of 18-20%, improving branch productivity with normalized cost-to-income ratio and scaling up its fee income from new business launches like Wealth, FASTag, credit card, CMS, among others. We expect IDFC FB to continue delivering RoA of 1%+ over FY23-25E,” the brokerage firm said.

In Q1FY23, the bank’s retail book continued to report a broad-based and strong growth momentum of 40% YoY. This was driven by credit cards (183% YoY), digital and gold loans (123% YoY), and home loans (60% YoY).

“Moreover, the bank has been reducing the infrastructure loan book by 32% CAGR over the past 3 years. We believe this will lead to stronger asset quality and eventually lower credit costs. We also believe that the bank’s ROA/ROE will further expand with strong operating performance, improving asset quality, reducing the cost-to-income ratio with operating leverage and lower credit cost.” it added.

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