International brokerage house Nomura has initiated coverage on IDFC First Bank with a ‘Buy’ rating, pointing to an upside potential of around 23.5% from current levels. According to the brokerage report, the bank is moving out of a long investment-heavy phase and entering a period where earnings and profitability could stabilise and improve. The brokerage has set a target price of Rs 105 to the stock.
Let’s take a look at the key reasons why the brokerage has given a buy call to the stock and what is the rationale behind it-
Nomura on IDFC First Bank: Shift from transition phase to steady profitability
As per the brokerage report, IDFC First Bank has spent several years reshaping its business model and balance sheet. The brokerage firm noted that this transition phase is largely behind the bank. The report stated that the bank is now moving “from a multi-year investment and balance-sheet transition phase to one of sustained, broad-based profitability.” Over time, the bank has reduced its dependence on wholesale lending and focused more on retail loans, which are smaller, more diversified and spread across many borrowers.
According to the brokerage, this change has improved visibility on future growth. Nomura expects loans and deposits to grow at a healthy pace over the coming years. The report also highlighted that the bank’s fee income, which includes earnings from services beyond lending, is stronger than many peers, helping support overall income even if lending margins fluctuate.
Nomura on IDFC First Bank: Operating costs expected to ease with scale
Another key factor Nomura highlighted is operating leverage. The brokerage highlighted that expenses were high in earlier years because the bank was investing in branches, staff, technology and new business lines. According to the report, “Operating expenses were elevated over FY19-25 as the bank invested in branches, people, technology, and multiple new businesses.”
Nomura believes that the benefits of these investments are now starting to show. As growth becomes more stable and the bank gains scale, costs as a percentage of assets and income are expected to decline gradually.
Nomura on IDFC First Bank: Margins and asset quality under watch
The brokerage also noted the margins and asset quality, which are closely tracked by investors in banking stocks. Nomura noted that pressure on net interest margins due to changes in interest rates and loan mix appears to be easing. According to the report, “NIM pressure over FY25–1HFY26 from repo-linked repricing and loan-mix effects is largely absorbed.”
On asset quality, Nomura pointed out that stress has been mainly limited to the microfinance portfolio, while other segments such as credit cards and consumer loans have remained relatively contained. The report stated that “Asset-quality stress has been largely confined to the microfinance (MFI) portfolio.”
Nomura on IDFC First Bank: Valuation and risks
Nomura values IDFC First Bank at a multiple of its estimated book value and sees room for re-rating if earnings improve as expected.
The brokerage report noted, “We initiate coverage at Buy with a target price of Rs 105 (implying 24% upside).” At the same time, it flags risks such as slower cost improvement, higher-than-expected credit costs or weaker loan growth.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.