My understanding is that the valuation of a bank depends on its ROE. If IDFC First is able to improve ROE and maintain asset quality, it is likely to get rerated. The quantum of rerating depends on the extent of improvement in ROE. For a long term price to book over 3, it has to consistently maintain its ROE over 18%. Whether or not it able to do that, only time will tell. Currently, with ROE at around 10%, it is probably trading at fair value.
Disclosure- Invested.
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