IDFC First Bank shares fell 5% after its second-quarter results and analysts cut their price targets

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

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

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

Management has increased the full year credit cost guidance to 2.25% from 1.85% previously.

Nuvama Institutional Equities maintained a ‘Hold’ rating on the stock, but lowered its price target ₹60 from ₹72 per share earlier.

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

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

This increase was caused by ₹315 crore in contingent provisions for stress in the portfolio of microfinance institutions (MFIs) and ₹253 crore in accelerated provisions for old toll bills.

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

Core profit before provisions (PPOP) grew 28% year-on-year and remained flat quarter-on-quarter, although 7% below estimates, as lower net interest income (NII) and non-interest income declined. partially offset by lower operating costs in the second quarter.

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

The bank’s operating result is in line with expectations; However, higher provisions affect the net result.

The credit cost guideline has been adjusted upwards to 2.2-2.25%.

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

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

Speaking to CNBC-TV18, management said MFI stress should peak in the fourth quarter. They added that they are closely monitoring the unsecured retail loan segment and expect it to remain stable.

Shares of IDFC First Bank fell 10% in early trade to hit a 52-week low ₹59.24 on the BSE. The stock has recovered some losses and is currently trading 3.20% lower ₹63.43.