Brokerage bullish on THIS private bank on the back of strong ROE – Check key details here
ICICI Securities initiate coverage on IDFC First Bank with a Buy recommendation with a target price of Rs 73 per share (assigning 1.9x multiple to FY23E book).
The brokerage firm said, the bank’s evolution is unique in a sense: on getting a license, it was created out of demerger of infrastructure financing business followed by the merger of erstwhile Capital First.
Stress build-up and franchise investment resulted in a weak return profile (net worth erosion) during the transition phase. However, the new bank, with a new Board, new management and renewed focus, has made significant strides in retailisation and granularisation of its business, it said.
The brokerage mentioned that the current return profile is dragged by high-cost structure, low fee income and elevated credit cost.
Nonetheless, its marginal unit economics is superior and incremental retail disbursements have potential RoE (return of equity) of more than 20 per cent.
Going forward, ICICI Securities said, key triggers for RoE improvement would be normalisation of cost to income ratio, retail fee income scale-up, and steady improvement in NIM trajectory.
Key risks would be the sustenance of cutting edge execution of stated strategy and elevated ‘cost to income’, said the brokerage firm.
It further added, a remarkable transition in asset and liability profile post the merger and Investment in the franchise comes at a cost; efficiency key to drive the return of assets and return of equity profile currently low; incremental unit economics superior.
IDFC First Bank is currently trading flat but positive at Rs 59.55 per share, it touched day’s high of Rs 60.55 per share and day’s low of Rs 59.15 per share. The stock has surged around 10 per cent in the last month. And, had touched a 52-week high of Rs 69.30 per share on March 04, 2021.
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