IDFC First joins elite club of 10 most valuable listed banks in India

IDFC First joins elite club of 10 most valuable listed banks in India

The shares of IDFC First Bank scaled a record high of Rs 98.99 each, keeping up the rally for the fourth straight trading session on September 4. With a 67 percent surge so far this year, it leads all listed banks

Thanks to a stellar run in its shares this year, IDFC First Bank has entered the elite club of 10 most valuable listed lenders in India, replacing Union Bank of India and Canara Bank with a valuation of Rs 65,325 crore as of September 4.

Union Bank of India has a market capitalisation (MCap) of Rs 65,251 crore, while Canara Bank is worth Rs 61,081.77 crore, according to BSE data. HDFC Bank leads the league as India’s most profitable bank with a market cap of Rs 12 lakh crore, followed by ICICI Bank at Rs 6.77 lakh crore, and state-run State Bank of India at Rs 5.14 lakh crore. Kotak Mahindra Bank comes at the fourth spot, followed by Axis Bank, IndusInd Bank, Bank of Baroda, IDBI Bank and Punjab National Bank.

The shares of IDFC First Bank scaled a record high of Rs 98.99 each, keeping up the rally for the fourth straight trading session on September 4. With a 67 percent surge so far this year, it leads all listed banks, both private and state-run. The bullish trading in the IDFC Bank stock stems from the impending merger with IDFC and its entry into the MSCI Global Standard Index on September 1, potentially bringing in $170-180 million in investments, analysts said.

The stock on September 4 jumped over 5 percent after Rajiv Jain of GQG bought 17.1 crore shares or 2.58 percent stake in the lender for about Rs 1,527 crore.

Read: After Adani, JSW Energy, GQG buys stake in IDFC First Bank

While many investors are enthusiastic, some analysts are closely monitoring the bank’s performance. Despite a strong show on various metrics, there’s curiosity about the sustainability of the momentum. CEO Vaidyanathan, who has previously stressed on growth, appears to be shifting towards a more balanced approach between growth and profitability, analysts said.

IDFC First Bank boasts of a robust net interest margin (NIM) and exhibits a strong growth profile. Despite facing challenges in the market, the bank has maintained a healthy performance in terms of asset quality, though its Return on Assets (RoA) and Return on Equity (RoE) have been hit by an elevated cost-to-income ratio.

The lender reported a nearly 36 percent on-year surge in net interest income for the June quarter while its other income spiked 49 percent. Its net profit advanced over 61 percent, while provisions soared 55 percent over last year. Operating expenses were up 37 percent.

Read: IDFC First Bank Q1 profit surges 61% YoY to Rs 765 crore, stock jumps 2%

The bank’s RoA and RoE improved to 1.25 percent and 11.78 percent from 0.97 percent and 8.96 percent, respectively. Its cost-to-income ratio stood at 71 percent during the June quarter and remained elevated for more than two years.

The rise in operating expenses and provisioning has raised investor concerns about the bank’s capacity to reward them. Positive banking sentiment hinges on expected improvements in return on equity and return on assets, analysts said.

The bank management maintains a confident outlook regarding its ability to achieve enhanced growth in its loan book while continuously improving the asset quality. Positive indications of this progress have been seen over the past four quarters. Analysts anticipate that the bank’s cost-to-income ratio will begin to moderate to 55 percent next quarter.

“We like the management’s approach towards the problem and opportunities and superb execution as per the stated plan. We believe the stock will continue to deliver a strong performance in the coming period given opportunity size and execution track record,” analysts said, refusing to be identified.

The lender reported a 25 percent jump in advances from a year ago while deposits surged 44 percent. The bank’s advance growth ranked third highest among all listed banks, while its deposit growth was the most significant among the listed banks. The CASA ratio of the lender stood at 46.47 percent, higher than bigger lenders such as State Bank of India, Axis Bank, HDFC Bank and ICICI Bank.

Analysts noted a significant improvement in the lender’s retail business, with a positive RoA of approximately 1.15 percent for FY23, compared to negative figures for FY22 and FY21. They also observed improved asset quality in terms of customer quality at onboarding and across vintage, enhancing confidence in the sustainable low credit cost trend.

Further details regarding corporate and salaried and government or PSU segments indicate increasing momentum in the public sector. This is expected to receive a boost as the bank now possesses the necessary track record of profitability, the analysts said.

“We admire fairly detailed disclosures on asset quality, new businesses and segmental cost-to-income from the bank, though would appreciate more granular details around ‘other expenditure’ under opex and second layer of management… We update our model for annual numbers and introduce the FY26 estimates. In an environment where systemic NIMs or RoAs are peaking and growth is likely to moderate, IDFC First Bank appears to be better placed with strong visibility of broadly stable NIM and improving RoA, along with an among-the-highest growth outlook. As a result, we expect the bank to deliver amongst the best PAT CAGRs (less than 25 percent) in its peer-set for FY23-FY25,” ICICI Securities said in a note.

ICICI Securities has maintained an ‘add’ rating to the stock with a target price of Rs 105 a share valuing the stock at 2.2x March 2025 estimates of adjusted book value.


News Source

#idfc #modernbusinessnetwork #modernusinessindia #modernbusinessamerica #modernbusinesseurope  #modernbusinessasia  #modernbusinessgulf #modernbusinessgermany  #modernbusinessworld #modernbusinesstimes

Leave A Reply

Your email address will not be published.