Neutral IDFC First Bank; target of Rs 1170: Motilal Oswal

According to fresh market updates, Motilal Oswal's research report on IDFC First Bank

IDFC First Bank (IDFCFB) has delivered firm balance sheet expansion, with advances and deposits registering a CAGR of 21% and 26%, respectively, in the past three years. Deposit expansion has outpaced loan expansion as the liability franchise has scaled up, with the CD ratio declining significantly to 94% from 108% in FY23. The ~73% leverage provided on the USD3.57b FCNR (B) mobilization (11% of deposits) could likely compress full-year NIMs by ~7-12bp (Exhibit 8); that stated, the shift to progressive SA pricing alongside TD rate cuts should offset NIM impact. Despite the near-term NIM drag, FCNR (B) mobilization, which is estimated to add ~1.5-4.4% to incremental NII, coupled with improving opex intensity, should translate into an estimated ~4.1-6.8% lift to FY27E earnings. The bank has strengthened its internal controls and governance processes and has recently lowered its credit cost guidance, underscoring firm asset quality trends. We estimate GNPA/NNPA to moderate to 1.4%/0.4% by FY28E.

We arrive at a TP of INR1,170, based on 40x FY28E EPS for the UCP segment, 25x FY28E EPS for the PES and EMPS segments (each), and INR20/share for Voltbek.

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