Stock To Buy: This Mid Cap Banking Stock Grew 57.16% In 3 Months, Brokerage Sees 24% Upside

ICICI Direct has placed a "buy" call on IDFC First Bank with a target price of Rs 70 per share for gains of up to 24% considering the given target price and the Current Market Price. It is a mid-cap private bank having a market capitalization of Rs 35,137.84 crore.

IDFC First Bank was formed by the merger of the erstwhile IDFC Bank and Capital First in 2018. Retailisation of its business has been the key focus. Retail-funded assets form 66% of total funded assets. The Branch network is at 670 as on September 2022.

Stock Outlook & Returns on Investments

The current market price (CMP) of the stock stood at Rs 56.50 per share on NSE. The 52-week high of the stock is Rs 59.45 and the 52 week low is Rs 28.95, respectively. Its ROE is 0.62%. 

In the past 1 week, it has surged by 0.18%. In the past 1 month it gave 16.02%, whereas, in the past 3 months, it gave 57.16% positive returns. In the past 1 and 3 years, it has given 14.49% and 38.99% positive returns, respectively. However, in the past 5 years, the stock fell by 1.65%, giving a negative return.

Q2FY23 Results

IDFC First Bank reported a strong performance. GNPA down 18 bps QoQ to 3.18%; NNPA down 21 bps QoQ to 1.09%. NII up 32.1% YoY, NIMs up 9 bps QoQ to 5.98%, C/I at ~73%. Provisions down 10.7% YoY; PAT at Rs 555.6 crore up 3.6x YoY. Funded assets up 24% YoY at Rs 1.45 lakh crore, retail grew 41% YoY.

Buy for a target prise of Rs 70 per share

IDFC First Bank's stock price rose ~46% in the past six months as balance sheet strength improved. Healthy business growth, steady asset quality and gradual improvement in CI ratio should drive RoA; thus valuation. "We retain our BUY rating on the stock. We value IDFC First Bank at ~1.8x FY24E ABV to arrive at revised target price of Rs 70 per share," the brokerage has said.

Key triggers for future price performance

Focus on retail segment to drive business growth, margins along with granularity. Replacement of legacy borrowing with liabilities at competitive cost remains key. Adequate provisions already in place to keep credit cost at ~1.5%. Thus, aiding earnings trajectory and, therefore, return ratios. Gradual decline in CI ratio remains key to drive further re-rating in valuation. The management has guided CI ratio at ~65%.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable 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.