Nomura increased its target price for IDFC First Bank to ₹95 following a strong June quarter performance. The bank reported a net profit of ₹10.7 billion, driven by higher fee income and improved operational efficiency. Investors are now watching if the bank can maintain this momentum in return on assets as it scales its deposit base.
Detailed Coverage
IDFC First Bank reported a strong start to the new financial year with its June quarter results. The private lender saw its return on assets (RoA) cross the 1% threshold for the first time in two years, a key metric that shows how efficiently a bank uses its assets to generate profit. Following these results, brokerage firm Nomura updated its outlook, raising the stock's target price to ₹95 from ₹85.
The bank’s core performance, measured by pre-provision operating profit (PPOP), grew by 36% compared to the same period last year, reaching ₹23.7 billion. This growth was fueled by strong net interest income—the difference between what the bank earns on loans and pays on deposits—and a healthy increase in fee income. Net profit for the quarter stood at ₹10.7 billion, which benefited from higher treasury gains and lower credit costs, or the money set aside to cover potential loan losses.
Strategic Guidance and Growth Targets
Management has adjusted its internal expectations for the coming years. The bank raised its net interest margin (NIM) guidance for FY27 to 5.8%. Additionally, it lowered its credit cost guidance to a range of 1.5% to 1.6%, signaling increased confidence in the quality of its loan book. These changes have led analysts to revise their earnings per share estimates higher for FY27 and FY28, with projections now pointing toward an RoA of 1.15% and a Return on Equity (RoE) of 11.2% by FY28.
The bank’s growth remains broad-based, with loan books expanding by 21% and deposits growing by 18% on a year-on-year basis. A notable improvement was seen in the CASA ratio, which rose to 50.8%. A higher CASA ratio is generally viewed as a positive for banks, as it indicates a larger share of low-cost current and savings account deposits, which helps in managing overall interest expenses.
Investor Monitorables
While the recent performance shows improvement, the bank operates in a competitive environment where balancing aggressive loan growth with asset quality is crucial. Moving forward, the key factor for investors to track will be the bank's ability to maintain these margins while managing its credit costs. Furthermore, the bank’s stated objective to capture a 2.5% market share in FCNR deposits will be a specific area to watch in future quarterly updates. The sustainability of this earnings momentum through the next few years will depend on its ability to leverage its existing branch network and control operational expenses.