Should you buy IDFC First Bank shares after steady Q1 earnings?

A steady June quarter earnings with lower provisions triggered buying action in IDFC First Bank shares on Monday as it jumped over 2% to the day’s high of Rs 85.75 on the NSE. The stock, which is at a kissing distance from its 52-week high of 86.10, saw over 2.4 crore shares changing hands around 10:30 am.

Following IDFC Bank’s April-June quarter earnings on Saturday, Motilal Oswal reiterated ‘Buy’ rating while Nuvama recommended a ‘Hold’ on the counter.

IDFC First Bank reported a 61.3% year-on-year (YoY) rise in its net profit to Rs 765 crore for the said quarter on the back of a 43.3% on-year jump in total income from operations to Rs 8,282 crore. Net interest income, the difference between interest earned and interest expended, rose 36% YoY to Rs 3,745 crore. Operating profit for the quarter, before provisions and contingencies, surged 59% YoY to Rs 1,500 crore.

Here is what top brokerages recommended on IDFC First Bank shares:

Motilal Oswal: Buy | Target: Rs 100 | Upside: 19%
Motilal Oswal reiterated its ‘Buy’ view on the private lender for a price target of Rs 100, valuing the stock at 1.9X FY25E book value.

The domestic brokerage estimates a 31% CAGR in PPoP (Pre Provision Operating Profit) over FY 2023-25 with controlled credit costs to be likely driving a 32% CAGR in net profit over the similar period.

Its estimates of RoA/RoE are pegged at 1.3%/13.2% by FY25.Commenting on IDFC First Bank’s June quarter earnings, Motilal said that IDFC Bank delivered a steady quarter with healthy growth across key parameters. Strong fee income and lower provisions boosted earnings, which were prudently utilised to increase coverage.

IDFCB investments in digital capabilities, branch, and product expansion, ensuring its presence across retail products, augured well for the bank.

While cost ratios are elevated, they are likely to moderate as scale benefits come into effect, it opined.

Nuvama: Hold | Target: Rs 80 | Downside: 4%
Nuvama, on the other hand sees a 4% downside in the stock, though it has revised its target upwards to Rs 80 from an earlier target of Rs 60.

While the stock remains fairly valued in Nuvama’s opinion at 1.3% of its RoA, its bigger peers like IndusInd Bank and Axis Bank are available at similar valuations. Moreover, IDFC’s deposit franchise is still emerging, the contribution of unsecured and current deposits remains high.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)