IDFC First Bank shares fall 5% after Q2 results, analysts cut price targets

Shares of private sector lender IDFC First Bank Ltd. declined as much as 10% after the bank reported a 73% drop in its results for the second quarter ending in September.

The lender reported a net profit of ₹201 crore as against ₹645 crore in the year-ago period. The Net Interest Income (NII) rose 21% to ₹4,788 crore in the quarter, compared to ₹3,950 crore in the same period a year ago.

The decline in profit occurred as the lender increased provisions to cover potential future losses in its microfinance business.

The management has raised the full-year credit cost guidance to 2.25% from 1.85% earlier.

Nuvama Institutional Equities has maintained a ‘Hold’ recommendation on the stock but slashed it price target to ₹60 from ₹72 per share earlier.

The brokerage has cut its FY25 and FY26 earnings per share estimate by 35% and 7%, respectively.

Global brokerage firm Goldman Sachs has assigned a ‘Sell’ rating to IDFC First Bank with a target price of ₹64 per share. For the quarter, the lender reported a 71% miss on profit after tax (PAT) as against Goldman Sachs’ estimates. This was largely due to a significant rise in credit costs to around 3.2% (up 130 basis points quarter-over-quarter and 120 basis points above estimates).

This increase was driven by ₹315 crore in contingent provisions for stress in the microfinance institution (MFI) portfolio and ₹253 crore in accelerated provisioning for legacy toll accounts.

Asset quality saw a sharp deterioration with an increase in slippage ratio by 60 basis points quarter-on-quarter to 4%, which is in-line with other lenders with exposure with microfinance and unsecured retail.

The core pre-provision operating profit (PPOP) grew by 28% year-over-year and remained stable quarter-over-quarter, though it was 7% below estimates, as lower net interest income (NII) and non-interest income were partially offset by reduced operating expenses in Q2.

Motilal Oswal maintains a ‘Neutral’ rating on IDFC First Bank, setting a target price of ₹73.

The bank’s operating profit aligns with expectations; however, higher provisions impact net income.

Credit cost guidance has been revised upwards to 2.2-2.25%.

Deposit growth remains strong, while margins have slightly decreased by 4 basis points quarter-on-quarter.

Motilal has trimmed its for FY25 and FY26 earnings estimates by 18% and 5%, respectively, with an estimated return on asset and return on equity for FY26 at 1.0% and 11.0%, respectively.

Speaking to CNBC-TV18, the management said that the MFI stress should peak out by the fourth quarter, adding they are watching the unsecured retail loans segment very closely and expect it to remain stable.

Shares of IDFC First Bank tumbled 10% in early trade, hitting a 52-week low of ₹59.24 on the BSE. The stock has recovered some losses and are currently trading 3.20% lower at ₹63.43.