Up 8% in 5 days, where are IDFC First Bank shares headed?

Shares of IDFC First Bank Ltd climbed in four of past five trading sessions amid optimism over its deposit franchises and expected operational efficiencies that may kick off in the second half of the ongoing financial year. Absorption of 'first loan default guarantee' costs, repayment of high-cost liabilities and break-even of credit card platform play out.

On Wednesday, the stock climbed 3.47 per cent to hit a high of Rs 85.06 on BSE. With this, the stock is up 8 per cent return during the period. IDFC First Bank is scheduled to report its quarterly results on April 27.

IDFC First Bank Q4 results preview

Axis Securities in its quarterly preview note expects IDFC First Bank to report 9.7 per cent YoY drop in net profit at Rs 725 crore in the March quarter compared with Rs 803 crore in the same quarter last year. This is even as NII is seen climbing 24.7 per cent YoY to Rs 4,484 crore against Rs 3,597 crore in the year-ago quarter. Provisions are seen climbing 35 per cent YoY to Rs 652 crore. NIM is seen stable.

YES Securities said sequential loan growth will be in the 5 per cent ballpark due to idiosyncratic growth trajectory. NII growth will be slightly slower than average loan growth due to rise in cost of deposits outpacing yield on advances.

"Consequently, NIM will be slightly lower sequentially. Sequential fee income growth will broadly match loan growth. Opex growth will be in-line with loan growth. Slippages would be broadly stable on sequential basis.

Provisions will fall marginally on sequential basis due to high base in 3Q," it said.

IDFC First Bank target price

IDFC First Bank's strong earnings growth and improvement in profitability should drive a rerating as its valuations at 1.5 times FY25 adjusted price-to-book value are reasonable, Jefferies said in a note this week.

"Its ability to raise capital will be a key enabler as CET1 CAR is relatively lower at 14 per cent, ROE is lower and loan growth is higher. We factor in two capital raises in FY25 and FY27. Initiate with Buy and target price of Rs 100 based on 1.6x Jun-26e adjusted PB," Jefferies said.

Over FY24-27, Jefferies sees multiple levers to earnings growth, driven by asset growth, scope for 20 basis points margin expansion, 10 basis points jump in asset ratio and a 700-basis point fall in the cost-income ratio to 66 per cent.

"We factor in a rise in credit costs from 1.3 per cent in FY24 to 1.8 per cent in FY27, reflecting the rise in share of retail loans and normalisation of the credit cycle. These can aid 28 per cent EPS CAGR, up 30 basis points expansion in ROA to 1.5 per cent and 300 bps rise in ROE to 14 per cent," Jefferies said.

In March, BOB Capital Markets suggested a target of Rs 96 on the stock as it felt operational efficiencies to improve ROA to 1.4 per cent and ROE to 14 per cent in FY26E. "Considering sustainable growth and stable asset quality, we assume coverage with BUY, valuing the stock at 1.6x FY26E ABV using the Gordon Growth Model," it said last month.