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MOSL: MOrning India (18/October/22): 1. IDFC First Bank | Initiating Coverage (A better tomorrow!); 2. ACC; 3. Oberoi Realty; 4. IIFL Wealth; 5. PVR

MOrning India (18/October/22): 1. IDFC First Bank | Initiating Coverage (A better tomorrow!); 2. ACC; 3. Oberoi Realty; 4. IIFL Wealth; 5. PVR

Today’s top research idea

IDFC First Bank (Initiating Coverage): A better tomorrow!

• IDFCFB has strengthened its balance sheet over the past few years as it consciously increased the mix of retail business. The bank reported 5x growth in retail deposits over the past three years and simultaneously improved CASA mix to 50%. Further, the retail loan book posted an impressive 31% CAGR over FY19-22.
• It is well positioned to benefit from gradual run-down of its high-cost legacy borrowings over FY23-26E (INR224b at 8-9% cost) and replace them with deposits (at ~5.5% cost). ~77% of such bonds will be refinanced by FY25E. This will potentially add ~INR7.5-8.0b to NII (FY22 NII: INR97b) in due course.
• IDFCFB has made substantial investments in building the franchise, which has resulted in sub-optimal cost metrics. However, we expect the operating leverage to improve (C/I ratio at 66% by FY25 vs 75% in FY22) thereby aiding earnings.
• We estimate return ratios to improve sharply with RoA/RoE reaching 1.3%/ 13.9% in FY25E, respectively. We initiate coverage with a 'BUY' rating and a TP of INR70 (premised on 1.5x Sep'24E BV).

• Piping hot news

  SBI cuts savings deposit rate by 5 basis points to 2.70 per cent; BoB raises FCNR deposit rates

  State Bank of India (SBI) has reduced the interest rate on savings accounts by a marginal 5 basis points to 2.70 per cent effective from October 15. The new saving rates are applicable on balances of less than Rs 10 crore, on which the bank earlier offered 2.75 per cent per annum interest. The lowering of rates on savings accounts by SBI comes at a time when the peer lenders have been raising deposit rates to mobilise funds. However, on saving account balances of Rs 10 crore and above, SBI has increased the deposit rates to 3 per cent per annum from 2.75 per cent earlier.