Nomura Initiates IDFC First Bank Coverage, Sees 25% Stock Upside

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AuthorAnanya Iyer|Published at:
Nomura Initiates IDFC First Bank Coverage, Sees 25% Stock Upside
Overview

Brokerage Nomura launched coverage on IDFC First Bank with a 'buy' rating and a ₹105 price target, forecasting a 25% upside. Analysts cite a strategic shift to sustained profitability, a robust retail deposit franchise, strong loan and deposit growth projections, and superior fee income as key drivers. Nomura anticipates significant growth in core operating profit and improved return metrics by FY27.

Nomura Kicks Off Coverage on IDFC First Bank with Strong Buy Signal

Brokerage firm Nomura has initiated research coverage on IDFC First Bank Ltd., issuing a "buy" recommendation and setting a price target of ₹105 per share. This valuation implies a significant 25% potential upside from the bank's recent closing price. The optimistic outlook is predicated on four core factors identified by Nomura's analysts.

Shift to Sustained Profitability

Analysts noted that IDFC First Bank has transitioned out of a prolonged phase of investment and balance sheet restructuring. The firm is now positioned for sustained and broad-based profitability. This marks a significant strategic evolution for the Mumbai-based lender, moving towards more consistent earnings generation.

Retail Focus and Liability Franchise

IDFC First Bank has successfully cultivated a strong liabilities franchise. Nomura's report highlights a structural shift from a wholesale-led lending model to a granular, retail-focused approach. This diversification is expected to underpin future stability and growth.

Robust Growth Projections

Growth visibility for the bank remains high. Nomura projects that IDFC First Bank's loan and deposit books will expand at a Compound Annual Growth Rate (CAGR) of 20% and 22%, respectively, between financial year 2026 and 2028. Furthermore, the bank's fee income, already exceeding 2% of average assets, is deemed superior to its peers.

Financial Outlook

Nomura anticipates a 39% CAGR in core Pre-Provisioning Operating Profit (PPOP) from FY26 to FY28. This is expected to be driven by a moderation in cost-to-assets by 50 basis points and an improvement in Net Interest Margins (NIMs) by 14 basis points. A decline in credit costs by 35 basis points should bolster the Return on Assets (RoA) to 1.2% and Return on Equity (RoE) to 11.8% by FY27. These factors are forecast to support a sector-leading Earnings Per Share (EPS) CAGR of 67% over the same period.

Analyst Consensus

Currently, 29 analysts follow IDFC First Bank. The consensus leans positive, with 19 recommending a "buy," six advising "hold," and four suggesting "sell." Shares of IDFC First Bank closed nearly unchanged on Tuesday at ₹84.78, but have appreciated 36% over the past twelve months.

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