IDFC First Bank Q3 Review - Rationally Optimistic Guidance 2.0 With Operating Leverage Play: Axis Securities

Axis Securities Report

Outlook:

Deposit growth is expected to remain healthy and continue to outpace advances growth. This will allow the bank to reduce its credit/deposit ratio. Margins are expected to remain stable at current levels. The management will increase interest rates on personal loans as cost of equity has gone up.

Opex is expected to remain at elevated levels in the near term as the bank is currently building the businesses to sustain for the long term.

We expect IDFC First Bank Ltd.'s to maintain its growth momentum and model-in credit/deposit growth of ~24/33% compound annual growth rate over FY24-26E.

Thus, robust advances in growth, stable margins, healthy non-interest income, no major stress on asset quality, and adequate capital would offset the current level of elevated opex, thereby allowing the bank to deliver a sustainable return on assets of 1.4% by FY26E.

Key risks to our estimates and target price

• A slowdown in overall systemic credit growth could derail our earnings estimates.

• Elevated levels of the cost/income ratio would drag the bank's bottom line and thereby directly impact its return on assets and return on equity.

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