After Q1FY24 results, Street positive on IDFC First Bank's growth strategy

IDFC First Bank delivered good results in the first quarter of this financial year (Q1FY24), but some analysts are concerned the bank is fully-valued. 

So, there has been profit-booking after a price rise. Growth went side-by-side with a focus on cutting interest costs and exposure to high non-performing infrastructure loans.

The mortgage book is 28 per cent, of which 24 per cent is home loans and loans against property.

In total, loans saw a growth of 25 per cent year-on-year (Y-o-Y) and 7 per cent quarter-on-quarter (Q-o-Q), to Rs 171,600 crore. It was driven by growth in consumer finance of 27 per cent Y-o-Y (7 per cent Q-o-Q).

Home loans rose 31 per cent Y-o-Y (3 per cent Q-o-Q) to Rs 20,100 crore, while consumer loans were up 15 per cent Y-o-Y (12 per cent Q-o-Q) to Rs 22,300 crore.

The education loan book saw sequential increase from Rs 930 crore to Rs 1,290 crore.

Vehicle financing grew 10 per cent Q-o-Q (up 45 per cent Y-o-Y) to Rs 16,400 crore.

The bank is focussed on reducing Infrastructure exposure, which is at 2.2 per cent of loans.

It fell 44 per cent Y-o-Y (down 19 per cent Q-o-Q) to Rs 3,800 crore. The small and medium enterprises and corporate segments posted healthy performance, up 23 per cent Y-o-Y (9 per cent Q-o-Q) to Rs 49,700 crore.

The total deposits rose 44 per cent Y-o-Y (9 per cent Q-o-Q) to Rs 1,48,500 crore.

The term deposits grew 66 per cent Y-o-Y (18 per cent Q-o-Q) to Rs 76,700 crore, while CASA deposits were up 27 per cent Y-o-Y (flat Q-o-Q) to Rs 71,800 crore.

CASA ratio remains high at 46.5 per cent, but fell by 330 bps Q-o-Q. Certificate of deposits dropped 43 per cent Y-o-Y (down 24 per cent Q-o-Q) to Rs 6,000 crore reducing dependence on high interest deposits.

The bank added 15 branches and operating expenses rose 37 per cent Y-o-Y (plus 6 per cent Q-o-Q) to Rs 3,700 crore.

Core pre provision operating profit stood at Rs 1,500 crore, up 59 per cent Y-o-Y (down 4 per cent Q-o-Q). 

The bank posted net interest income of Rs 3,700 crore, up 36 per cent Y-o-Y (up 4 per cent Q-o-Q). Return on equity was at 11.8 per cent, down 52 basis points (bps) Q-o-Q due to capital raised in late March 2023, but up +282 bps Y-o-Y.

Return on assets improved to 1.3 per cent up 29 bps Y-o-Y (up 3 bps Q-o-Q).

Growth in interest expenses was 44 per cent Y-o-Y (up 10 per cent Q-o-Q). The net interest margin was at 6.3 per cent, up 56 bps Y-o-Y. but down 8 bps Q-o-Q, owing to rise in cost of funds.

The guidance is that the cost of funds will improve given focus on reducing high cost borrowings.

Fee and other income was up 65 per cent Y-o-Y but flat sequentially at Rs 14,100 crore, with a stable contribution of 91 per cent from retail fees.

Provisions were flat sequentially (up 55 per cent Y-o-Y) at Rs 480 crore and net profit was at Rs 770 crore (up 61 per cent Y-o-Y and down 5 per cent Q-o-Q).

The overall gross non-performing assets (GNPA) was at 2.2 per cent, down 119 bps Y-o-Y (down 34 bps Q-o-Q), while NNPA stood at 0.7 per cent, down 60 bps Y-o-Y (16 bps Q-o-Q lower).

Further reduction of the infrastructure book would lead to better asset quality.

There’s a coherent strategy here in quest for growth without increase of risk. Most analysts are positive but high valuations could limit the upside.