Buy IDFC shares for target price Rs 232: Motilal Oswal

Motilal Oswal Financial Services has recommended IDFC shares with upside of 39 per cent.

In the past one year, the share price of the company jumped 40 per cent to Rs 166.70 on April 22 against Rs 118.85 on the same day a year ago.

The brokerage firm believes the share price of IDFC can touch Rs 232 in the next few quarters.

According to a research report by Motilal Oswal, IDFC is well poised to build a unique banking business model, with the least cost to income ratio.

Return on Equity (RoE) is expected to be healthy at 11-12 per cent in the first full year of operation and then steadily rise to around 18 per cent in the next four years.

Post conversion into a bank, its balance sheet size is likely to be similar to YES Bank, and the loan market share is expected to be just 80 basis points.

Cost optimisation and focus on "Bharat Banking" would be the key differentiators for IDFC Bank.

The brokerage house sees significant opportunity exists for IDFC Bank in the expanding profit pool of private banks.

Retail Banking in India has had a strong run over the last decade, with 15 per cent annualised loan and over 7 per cent annualised growth in number of accounts.

The driving force has been private sector banks, which witnessed a above 23 per cent annualised growth in loans as well as number of accounts.

For the quarter ended December 2014, the company registered net profit of Rs 400.80 crore, down 15.70 per cent, against Rs 475.44 crore in the corresponding quarter a year ago.

IDFC Limited is an infrastructure finance player providing end to end infrastructure financing and project implementation services.

The company provides financial assistance to various segments such as power, roads, ports, telecommunications, information technology.