How does IDFC First stack up among India's top 10 most valued banks

IDFC First Bank catapulted into India's top 10 most valued bank category by market capitalisation on Tuesday, breaching the Rs100-mark for the first time ever. Image: Indranil Aditya/NurPhoto via Getty Images
 
Shares of IDFC First Bank catapulted into India's top 10 most valued bank category by market capitalisation on Tuesday, breaching the Rs100-mark for the first time ever. Its shares hit a record high at Rs100.74 apiece during the day, with the market capitalisation standing at Rs65,849.32 crore on the BSE. The stock closed at Rs99.24, up 0.8 percent.  
 
Topping the league table of the country’s most valued bank by market cap is still HDFC Bank followed by ICICI Bank and government-run State Bank of India at the third position. As on September 5, HDFC Bank’s current market cap stands at Rs11.92 lakh crore.
 

Shares of IDFC First Bank have been rising consistently with its 52-week low at Rs 46.1 just a year back on September 28. However, investors have turned bullish on it as the stock has gained nearly 70 percent since the beginning of January.
 
Last week, US-based investment firm GQG Partners bought 2.6 percent stake in IDFC First Bank for Rs1,527 crore through open market transactions. Cloverdell Investment, the largest public shareholder in IDFC First Bank, sold around 4.2 percent or 27.9 crore shares at an average price of Rs89 per piece. At the end of June, Cloverdell Investment held 7.12 percent stake in IDFC First Bank while promoter IDFC Financial Holding Company owned 39.93 percent stake in IDFC First Bank, BSE data showed.
 
IDFC First Bank and IDFC are expected to complete a merger by end of this year, with a swap ratio of 155:100. On December 18, 2018, IDFC Bank and Capital First merged, and subsequently renamed IDFC FIRST Bank.  
 
According to Anand Dama, analyst, Emkay Global Financial Services, IDFC First Bank, with its strong retail DNA of erstwhile Capital First and risk architecture of a bank, is well-poised to tap the ensuing strong retail growth story.
 
“Following the merger, IDFC First Bank has generally delivered on its five-year turnaround strategy, resulting in the establishment of a strong retail bank—both on the asset and liability sides—despite an air of external disbelief throughout the journey. The bank is now entering into a new growth phase with a clear focus on building a diversified/secured retail portfolio, while cutting customer acquisition cost/operational cost and containing long-term credit cost,” Dama says.

Also read: Can V Vaidyanathan's Midas touch turn IDFC into a banking behemoth?
 
IDFC First Bank reported net profit at Rs765 crore in the June-ended quarter on the back of robust credit growth of yearly 26 percent and 7 percent sequentially. Its FY23 funded assets growth was strong at 24 percent year-on-year.
 
“Growth in retail is even stronger at over 30 percent YoY with robust traction in newer products providing visibility of among highest credit growth across peers, in our view,” say analysts at ICICI Securities.
 
In an environment where systemic net interest margins (NIMs) and return on assets (RoAs) are peaking and growth is likely to moderate, IDFC First Bank appears to be better placed with strong visibility of broadly stable NIM and improving RoA, along with among-highest growth outlook, according to analysts at ICICI Securities. “As a result, we expect the bank to deliver among the best net profit CAGR in its peer-set for FY23-FY25,” they elaborate.
 
Following the June-ended quarter results, the management of IDFC First Bank said the bank expects the credit card business to breakeven by FY25. The bank expects to reach 13-15 percent return on equity (ROE) by FY25 and 1.4-1.6 percent RoA by FY25. It expects new businesses such as commercial banking, credit cards and home loans to drive loan growth and earnings.
 
“IDFC First Bank is well-poised to deliver healthy loan growth as the drag from the wholesale book continues to moderate. This will be aided by a strong pickup in profitability, due to the replacement of high-cost borrowings, better cost trends, and controlled credit costs,” says Nitin Aggarwal, research analyst, Motilal Oswal Financial Services.
 
Meanwhile, in September, IDFC First Bank was inducted in MSCI index potentially attracting an inflow of $200 million foreign institutional investors (FII) money.