In its research note, HDFC Securities advised investors to purchase shares of IDBI Bank within the price range of Rs. 54.8 to Rs. 55.9 (1.15x FY25E ABV). The note emphasized that investing in IDBI Bank offers an opportunity for a turnaround, potentially resulting in a significant upside of around 25% within a year or so.
IDBI Bank stock provides a turnaround opportunity to investors, with a potential upside of up to 25% in one year or so, said HDFC Securities in a research note. The brokerage report recommended the investors to buy the shares of IDBI Bank between Rs. 54.8 – 55.9 (1.15x FY25E ABV). It noted that, “the improved financial condition of the bank and the proposed disinvestment of Government’s stake, provides an opportunity for a turnaround in the bank’s story on the back of a potentially professional management taking charge.”
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The report further said that, “we feel that investors can buy the shares of IDBI Bank between Rs. 54.8 – 55.9 (1.15x FY25E ABV) add more on dips to Rs. 48.5 – 49.5 band (1.02x FY25E ABV). We expect the Base case fair value of Rs. 61 (1.27xFY25E ABV) and the Bull case fair value of Rs. 68 (1.42xFY25E ABV) over the next 4-5 quarters.
Past growth, anticipated support from GOI and LIC offer
Regarding the bank’s recent performance, the report mentions that in Q4FY23, IDBI Bank reported total advances of Rs. 1,62,568 crores, representing a 19% YoY increase and a 10% QoQ increase. Additionally, total deposits reached Rs. 2,55,499 crores, showing a 10% YoY growth and a 19% QoQ increase. The report highlights the healthy CASA balance growth of 2% YoY and 7% QoQ, amounting to Rs. 1,35,455 crores. “The balance sheet remains well capitalized with total CRAR at 20.44%, Tier I at 18.08% and Tier II at 2.36% as at March, 2023. Further, as of March 2023, the bank has 1,928 branches and 3,334 ATMs,” said the report.
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The HDFC report took a bullish view on IDBI Bank shares by saying that, fighting against its patchy history, the bank had succeeded in increasing its profitability and clear up the asset book bank had been able to once it was included in the PCA framework of the RBI in 2017. The bank has a loan book of Rs. 1,62,568 crores and deposits worth Rs. 2,55,499 crores with healthy CASA ratio, benign asset quality and a diverse geographical presence. LIC which holds 49.24%, infused Rs. 26,367 crores at an average cost of Rs. 53.77 per share, Over the period of CY18-19.
“We feel that this acts as a strong support level to the final takeover price as LIC would not want to exit its holding in the bank at a loss. Further, the stake sale is bundled with management control which would warrant a further premium over the fair value of the bank’s shares,” said the report.
The bank’s balance sheet appears well capitalized with total CRAR at 20.44%, Tier I at 18.08% and Tier II at 2.36% as against a total CRAR of 19.06%, while Tier 1- 16.68% and Tier 2- 2.38% in FY22, as of March 2023. The Government of India along with its own entity-LIC had extended support to the bank when it was in distress. Therefore, continuous support from GoI and LIC along with the healthy capital position, the bank is expected to amplify its revenue.
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Caveat with possible uncertainties
A higher-than-expected deterioration in the asset quality, any delay in the recovery, higher than expected, the rise in interest rates may and also the rise in G-sec yields which could lead to MTM losses for the banking sector, are some of the major concerns which may harm the bank’s growth.
Moreover, the recent changes brought in in the top management such as the appointment of Mrs. Smita Kuber as its CFO in place of Mr. P. Sitaram, and Mr. Jayakumar S. Pillai, as the Deputy Managing Director, is expected to influence the bank’s strategies and functioning.
