Buy IDFC FIRST Bank: target of Rs 95: ICICI Securities

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • IDFC First Bank's operating jaws have sustained a 500bps delta, indicating efficiency and improving unit economics, driven by healthy CASA growth of 20% YoY and 5% QoQ.
  • The bank's NIM has shrunk to 5.58% due to the impact of FCNR, but management expects a quick recovery to 5.8% by Q4FY27, led by reversal of drag from excess liquidity and positive day count impact.
  • IDFC First Bank has garnered a significant USD 3.6bn in FCNR deposits, which has improved the quality of its liability book, but also resulted in a 16bps impact on NIM.
  • The bank's slippages have inched up QoQ to INR 18.9bn, but the ratio has improved 10bps QoQ to 2.3%, and SMA 1+2 trends in the overall RAM portfolio are encouraging, with a 5bps improvement to 72bps.

Thesis Validation Checklist

  • Investors should watch for IDFC First Bank's ability to sustain its operating jaws and improve its NIM in the coming quarters.
  • A key signal to validate the thesis would be the bank's ability to utilize excess liquidity and improve its loan mix, leading to a recovery in NIM.
  • Additionally, investors should monitor the bank's asset quality, particularly its slippages and SMA trends, to ensure that they remain under control.
  • The bank's ability to offset the impact of banca fee reduction through benefits from repo rate hikes, product mix, and FCNR will also be crucial to the investment thesis.