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Investing.com - Investec (LON:INVP) has upgraded IDFC First Bank (NASDAQ:FRBA) Ltd (IDFCFB:IN) from Hold to Buy and raised its price target to INR90.00 from INR65.00, citing strong growth prospects.
The upgrade is based on Investec’s projection that IDFC First Bank will deliver 29% core pre-provision operating profit (PPOP) compound annual growth rate (CAGR) over FY25-28e, which the firm notes is the highest across banks in its coverage. This growth is expected to be supported by an approximately 80 basis point reduction in cost-to-assets ratio.
Investec forecasts that the bank will achieve a 1.3% return on assets (RoA) by FY28e, compared to 0.5% in FY25, alongside a sector-leading 57% earnings per share (EPS) CAGR. The firm also expects a 90 basis point decline in credit costs from current elevated levels over the FY25-28e period.
According to Investec, IDFC First Bank is experiencing operating leverage across its businesses, though this is not yet evident at the headline level due to the strong pace of "retailisation" on both assets and liabilities, which the firm believes is nearing completion.
Investec now values IDFC First Bank at 1.4x June-27F book value, compared to 1x March-27F previously, factoring in approximately 100 basis points higher sustainable return on equity of 14%.
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