IDFC First Bank shares may rally to ₹100, says Jefferies on strong growth prospects

Shares of private sector lender IDFC First Bank will be in focus on Monday as global broking firm Jefferies initiated coverage on the stock with a 'Buy' rating and suggested a target price that hinted at 24% upside potential. Jefferies has a target of ₹100 on the stock.

The foreign brokerage said that IDFC First Bank has built a well-rounded platform, arguably among the most improved deposit franchises. Jefferies expects return on assets (ROA) to improve to 1.5% and return on equity (ROE) to 14%, leading to a re-rating of the stock.

In a note, the brokerage said that operational efficiencies will play out from the second half of the current financial year (H2FY25).

"Over FY24-27 strong deposit growth will aid loan growth that should aid 28% EPS CAGR even as credit costs rise," it stated.

Jefferies also said that a fall in rates should help it more than peers, and that the lender's ability to raise capital will be the key.

IDFC First Bank's valuations are also at reasonable levels, the brokerage said in its note.

In a recent interaction with CNBC-TV18, IDFC First Bank MD and CEO V Vaidyanathan said the Indian banking system is in position strong enough to support India's growth at least for the next decade. He pointed out that the net worth of the country’s banking system is robust at ₹25 lakh crore.

The lender reported an 18.4% increase in net profit in the third quarter at ₹715.7 crore from the previous year's ₹604.6 crore.

Its Net interest income (NII), which is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors, increased 30.5% to ₹4,286.6 crore against ₹3,284.3 crore in the previous year.

The lender's gross non-performing asset (GNPA) stood at 2.04% in the December quarter against 2.11% in the previous quarter. Net NPA came at 0.68% against the previous quarter's 0.68%. The net interest margin was 6.42% in the December quarter as compared to 6.13% the same quarter previous fiscal and 6.32% in second quarter of FY24.

IDFC First shares closed 1.83% higher at ₹80.90 apiece on Friday. The stock has gained 50% in the past year.