Geojit Is Bullish On This Mid-Cap Banking Stock, Sees 21% Upside

Brokerage firm Geojit Financial Services Ltd has been optimistic about the stock of IDFC First Bank Ltd. The brokerage firms has suggested investors to buy the stock at its current market price to receive 21% potential gain. The bank has been successful in shifting its advance mix with retail focus and has made a considerable reduction in its corporate/infrastructure book.

Asset quality improved with GNPA/NNPA at 3.70%/1.53% compared to 3.93%/1.74% during previous quarter. Provision Coverage Ratio (PCR) improved to 70.3%.

1. Stock Outlook

The current market price of the stock is Rs 32.25 and its 52-week high was Rs 62 apiece while 52-week low was 28.95 apiece. Geojit Financial has recommended investors to buy the stock with a target price of Rs 39 apiece and potential upside of 21%.

Current Market Price	Rs 32.25
Target Price	Rs 39
Potential Gain	21%
52-week high	62
52-Week	28.95
1-year return	-40.5%

2. Declining legacy overhang to drive growth

The bank had been realigning the loan book to cut down the high infra book and to add more retail books. This has resulted in a slower loan growth of 6% over FY19-22. Bank has successfully provided for all legacy stressed corporate and infra loans and the share of infra loan has reduced from 9.2% in FY21 to 5.2% in FY22. Gross Funded Asset of the bank grew by 13% YoY during FY22 to Rs.1,31,951cr with retail loan book growing at 28% YoY to Rs.83,740 cr. Management is expecting the loan book to grow at 20-25% going forward. Deposit of the bank grew by 13% YoY to Rs.93,214cr with CASA book growing at 11%. CASA ratio of the bank stood at 48.4% compared to 51.8% in FY21. Capital Adequacy of the bank stands at 16.74% in FY22 compared to 13.77% in FY21.

3. Improvement in asset quality

The asset quality of the bank continued its improving trend across all segments. GNPA stood at 3.70% compared to 4.15% in FY21 (3.96% in Q3FY22) with improved collections and economic recovery. Even though the NPA numbers are above the desirable levels keeping credit cost high, we expect it to improve in the coming quarters. Management has given credit cost guidance of 1.5% for FY23 compared to 2.5% in FY22. NNPA as on FY22 stands at 1.53% compared to 1.74% in Q3Y22 and 1.86% in Q4FY21. GNPA of infra book stands at 21.64% while that of corporate book (non-infra) stands at 2.75% and retail and commercial segment stands at 2.63%. Overall Provision Coverage Ratio stands at 70.3% and collection efficiency has surpassed pre-covid levels with urban retail segment at 99.6%.

4. Outlook & Valuation

According to Geojit Financials, "Bank has shown significant improvement in its books by bringing down risky infra and corporate loans and focusing on retail lending. With successful diversification in its book, the bank is set to focus on strong growth. Other key business figures including margins, deposit mix etc. is also supporting a positive long term growth story. Even though we expect credit cost to remain high, it is expected to moderate from current high levels. We marginally trim our earning estimates to factor the ongoing slowdown in economic growth. With the recent correction, IDFCFB has become an attractive bet for long term investment. We maintain our Buy rating with a target price of Rs.39 based on 1.0x FY24 Adj. BVPS."

5. About IDFC First Bank Ltd

IDFC FIRST Bank was founded by the merger of Erstwhile IDFC Bank and Erstwhile Capital First on December 18, 2018. IDFC Limited was set up in 1997 to finance infrastructure, focusing primarily on project finance and mobilization of capital for private sector infrastructure development. The market capitalization is 20,056 crore.

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.