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Upgrade in target price of IDFC First Bank - Angel Broking

Posted On: 2020-11-26 02:20:51 (Time Zone: Arizona, USA)

Mr. Jyoti Roy - DVP - Equity Strategist, Angel Broking Ltd

We are upgrading the target price of IDFC First Bank from Rs. 40 to Rs.44 post the recent report by the RBI's Internal Working Group on proposed changes in ownership guidelines for Indian Private Sector Banks. Under the new guideline the RBI has proposed that the ceiling on promoter ownership be increased to 26% from current 15% while Banks currently under NOFHC structure have been allowed an exit from such a structure through the reverse merger route if they do not have other group entities in their fold. If accepted both the changes will reduce the overhang of future dilution of promoter stake as IDFC Ltd currently has a 40% stake in the bank along with its holding in IDFC AMC. Under the proposed guidelines IFDC will have to dilute only 14% of its holdings in the bank as compared to 25% earlier in case they continue to own the AMC. However in case the holding company decides to sell off the AMC business then it opens up the possibility of reverse merger of the bank with the holding company which will do away with any possibility of sale of shares by the promoter entity in the future.

Moreover we remain positive on the bank given that the liability franchise has strengthened significantly under the new management. CASA ratio improved from 10.4% in Q3FY19 to 40.4% In Q2FY21 while NIM has improved to 4.57% in Q2FY21 from 2.89% in Q3FY19. The Bank had raised Rs. 2,000 crores of fresh equity capital during Q1FY21 post which Capital Adequacy Ratio stands at 14.7% at the end of Q1FY21 along with CET-1 Ratio of 14.3%. We believe efforts to build a liability franchise, fresh capital infusion, and provision taken on the wholesale books will help to tide over this difficult time. IDFC First Bank is trading at 1.1xFY22ABV which is at a significant discount to historical average valuations. We have a BUY rating on the stock with a target price of Rs. 44 (1.3xFY22ABV).

Shares of IDFC First Bank Ltd was last trading in BSE at Rs.35.8 as compared to the previous close of Rs. 36.9. The total number of shares traded during the day was 2888576 in over 30357 trades.

The stock hit an intraday high of Rs. 37.3 and intraday low of 35.6. The net turnover during the day was Rs. 105243898.

Source: Equity Bulls

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