IDFC First Bank Limited

My two cents based on the management commentary and the results:

1. Management has tried to make good use of the trading gains this quarter by spending more on opex. I believe some part of the opex is quite discretionary for the management and they will undertake it based on other moving parts of the income sources.

2. Other Income is up 5.12% QoQ which is good but could have been much better if MDR(Merchant Discount Rates) for issuer banks for fastags were not revised downwards by the Govt. Since the effective date for this revision was 01st April, 2022, there was reversal of toll income in Q2 which was booked in Q1, loss of income in Q2 and high base of Q1 made the growth look lower. If not for this factor, other lines of the fee income(Wealth Management, banking, Loan Origination, credit card, trade forex etc) registered excellent growth(double digit QoQ). Dec’22 Quarter is going to be bumper for fee income and we can see a 10-12% rise QoQ in fee income in Dec’22 as compared to Sep’22.

3. Markets will see a much stable sequential performance from the bank every quarter atleast for 2.5-3 years. Any exceptional, one time gain that the bank makes will be used for discretionary opex or strengthening the balancesheet.

4. Reverse merger will only happen when the bank wants it to happen and the valuation at which it wants it to happen. IDFC Ltd may be the one holding the golden egg(AMC Cash and IDFC First shares) but the egg can only be hatched by the bank. In my view, the bank would want to be fair to its investors and the QIP investors who poured money at 57.35. Any RM will only happen after capital raise at a significant premium(in my view upwards of 75/Share). IDFC Ltd should continue to trade at a premium of 27-42% till merger is announced.

For anyone who wants a stable growth portfolio company with minimal turbulance and air pockets should seriously consider this bank for the next 3 years in my view. By my projections, Bank will deliver 15%+ RoE and 65% Cost/Income by Q4FY24.The trajectory and pace of expansion in RoE and RoA will leave almost every analyst startled