As per Management guidance, Advances are expected to grow at 20-25% in the foreseeable future and it will be fueled by growth in CASA and not by further equity infusion.
With a few basic assumptions:
Net Interest Margin (NIM) will stay in the range of 5.5% to 6% in the near term
Cost to income will eventually reduce (management guiding at 55% for FY25, in bear case let’s assume it reached 65% by FY25)
GNPA and NPA levels to remain around 2% and 1% respectively. (as per mgmt guidance and their long-term track record at Capital First.)
Positive support to NPA levels in the coming years as the Infra book is being closed rapidly
Positive support to NIMs as legacy high-cost borrowings are being replaced with new low-cost funds. (Legacy borrowings are with different maturity dates, most of it is maturing by FY26.)
Qualitatively,
IDFC First Bank is building itself as a strong retail franchise with a customer-first approach and superior marketing and branding. According to my own experience and some scuttlebutt, IDFC First Bank has got one of the best tech capabilities (Net Banking, Fastag, Payments, and other ancillary services.) , also it has strong goodwill among its customers, employees, and the public in general.
With these facts and assumptions in mind, I feel confident that the Bank will:
Be able to generate enough CASA Deposits to fuel its growth
Meet the guidance of growth in Advances at 20-25%
Key Risks here can be:
Cost to Income stays very elevated, thus decreasing the ROE.
Provisions increasing from current levels either due to weak underwriting or economic cyclicality
Key man risk: V Vaidyanathan, CEO of IDFC First Bank has been the showrunner and thus the stakes on him are high.
To conclude, if the risks are kept well in control, IDFC First Bank has the potential to be a multi-bagger 2-3x in the next 5 years with even brighter future prospects.
Do let me know what you guys think or If I am missing something here?
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