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IDFC First Bank stock gives over 101% returns in 4 months; Should you buy after Q2 results?

Mumbai-based IDFC First Bank is expected to post double-digit gains in equities going forward after a strong run of numbers in the quarter ended September 30, 2022 (Q2FY23). The overall quarter was in line with expectations. Due to the Q2 results, IDFC First shares witnessed great buying sentiment on Monday, even clocking in at a new 52-week high. Due to the latest stock performance, IDFC First emerged as a multi-bagger stock with gains of over 100% in a span of just over 4 months.

During muhurat trading hour on Monday, IDFC First shares hit a new 52-week high of 59.40 each on BSE. The stock ended on 58.35 each, an increase of 1.83%.

Year-to-date, IDFC First shares in Dalal Street are up more than 17.5%. From the 52-week low of 28.95 apiece, which was registered on June 22 this year, IDFC First shares emerge as a multi-bagger by soaring more than 101.5% in just over 4%.

There is more potential for upside in IDFC First Bank stocks.

IDFC First Bank’s Q2FY23 numbers were strong with 266% growth in profitability to 556 crore compared to a profit of 152 crore in the same period last year. The PAT was driven by robust core operating income growth. Furthermore, net interest income (NII) increased by 32% to 3,002 crore in Q2FY23 from 2,272 crore in Q2 of FY22. The net interest margin increased to 5.98% in the quarter under review from 5.83% in Q2FY22 and 5.89% in Q1FY23.

In a report, Sagar Shah Senior Research Analyst at Phillip Capital said: “The company’s Qw2FY23 lived up to expectations, led by 25% growth in funded assets and improved asset quality with GNPA at 3.18% and NNPA at 1.09%,” adding, “Net interest margins were healthy at 5.98% (year-on-year), led by solid traction in customer deposits, higher advances revenue and healthy growth in funded assets.”

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Furthermore, Shah added: “Bank has further increased its PCR at the bank level to 76.49%, further strengthening its balance sheet. Infrastructure business portfolio has further decreased to 5992 Cr, which is 4% of the total financed capital. The company book had a healthy growth of 20%, which is a nice balance for the book as a whole.”

On September 30, 2022, the bank’s gross NPA improved from 3.36% in Q1FY23 and 3.18% in Q2FY22 from 4.27% to 4.27%. Net NPA came in at 2.09% in Q2FY23 compared to 1.30% in Q1FY23 and 1.09% in Q2FY22. While the bank’s funded assets are up 25% yoy to 1.45.362 crore in the last quarter.

The bank also managed to achieve 10% ROE and 1.07% ROA in Q2FY23 itself, which was the target to achieve in Q4FY23.

IDFC First management expects net interest margins to remain around 6%, led by solid traction in Retail-funded assets. Furthermore, the bank expects to completely reduce the infrastructure loan portfolio to 0 in the coming years, which corresponds to 4% of the gross capital financed on September 30, 2022. The lender also expects the ROE and ROA to improve from now on, driven by improvement in the operating leverage, the stock brokerage note stressed.

Speaking about the outlook for the future, Shah said: “With tailwinds in favor of the sector, we believe the banking sector will perform well in the coming years, led by healthy credit growth and improving macros, although any macro uncertainty is an important element to watch out for. We believe IDFC First Bank will do well among the Tier 2 banks given its strong ability to collect deposits, sound payouts and manage asset quality.”

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Shah’s note said: “We are revising its PPOP and NPAT upwards over FY22 – FY24E to account for higher return on deposits and higher fees for funds. We expect the bank’s total income and PPOP to grow at a CAGR of 23% and 41% respectively from FY22 – FY24E AT CMP the bank trades at 1.4 x Adj BV FY24E takes most of the positives into account, but we believe that improving yield ratios would lead to a revaluation of We recommend a “BUY” recommendation for the stock with a price target of 66, which represents a 15% increase from current levels.”

Disclaimer: The opinions and recommendations expressed above are those of individual analysts or brokerage firms, not Mint.

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