Shares of IDFC First Bank Ltd. rallied 10% in Monday's trading session, reaching a high of Rs 88.70. The significant surge was triggered by the bank's stronger-than-expected June quarter (Q1) results, which prompted multiple brokerages to upgrade their ratings and increase target prices.
Q1 Performance Exceeds Expectations
IDFC First Bank's Q1 results were bolstered by a one-off interest on an IT refund and robust treasury gains. The bank's management also raised its Net Interest Margin (NIM) guidance for FY27 by 5 basis points, now targeting approximately 5.80%. Furthermore, the FY27 credit cost guidance was reduced to 1.5-1.6% from the previous 1.7-1.8%.
Nuvama Institutional Equities noted a substantial 61% beat on Profit After Tax (PAT), despite the bank building contingent provision buffers. Deposit growth saw a strong rebound, increasing 17.7% year-on-year and 5.9% quarter-on-quarter, recovering from previous issues.
Optimistic FY27 Guidance Reaffirmed
Investor sentiment was further boosted by the management's reaffirmation of its FY27 guidance. The bank aims to sustain a Return on Assets (RoA) of more than 1%, supported by operating leverage, resilient margins, and stable asset quality. Nuvama, factoring in the Q1 beat and improvements in operating expenses and credit costs, raised its earnings estimates and projected a 1% RoA for IDFC First Bank in FY27.
Brokerage Upgrades and Target Prices
Following the impressive Q1 performance, several prominent brokerages revised their outlook on IDFC First Bank:
- CLSA: Upgraded to 'Accumulate' from 'Hold', raising its target price to Rs 95 from Rs 73.
- ICICI Securities: Upgraded to 'Buy' from 'Add', with a revised target price of Rs 100 against Rs 77.
- Axis Capital: Upgraded to 'Add' from 'Reduce', increasing its target price to Rs 85 from Rs 70.
- HSBC: Set a target price of Rs 100.
- Jefferies: Set a target price of Rs 96.
- JPMorgan: Set a target price of Rs 90.
- Nomura and DAM Capital: Both set a target price of Rs 95.
Among the 16 brokerages that have released post-Q1 updates, Investec holds the highest target price at Rs 115, while Morgan Stanley has the lowest at Rs 75, according to Bloomberg data.
Analyst Commentary Highlights
SBI Securities described Q1 as a healthy quarter, driven by strong asset growth, improving margins, and stable asset quality, contributing to a RoA exceeding 1%. They highlighted the rebound in deposit growth, led by robust CASA (Current Account Savings Account) accretion, which had been impacted by previous fraud-related disruptions and rate rationalization.
Nuvama Institutional Equities, in its upgrade to 'BUY' from 'HOLD', set a revised target price of INR 95, based on 1.4x Jun-28E Adjusted Book Value (ABV).