Angel Broking

IDFC FIrst Bank (Buy)

Target: ₹44

CMP: ₹35.80

We are upgrading the target price of IDFC First Bank from ₹40 to ₹44 post the recent report by the RBI’s Internal Working Group on proposed changes in ownership guidelines for Indian Private Sector Banks.

Under the new guideline the RBI has proposed that the ceiling on promoter ownership be increased to 26 per cent from current 15 per cent while Bank's currently under NOFHC structure have been allowed an exit from such a structure through the reverse merger route if they do not have other group entities in their fold.

If accepted both the changes will reduce the overhang of future dilution of promoter stake as IDFC Ltd currently has a 40 per cent stake in the bank along with its holding in IDFC AMC. Under the proposed guidelines IFDC will have to dilute only 14 per cent of its holdings in the bank as compared to 25 per cent earlier in case they continue to own the AMC.

However, in case the holding company decides to sell off the AMC business then it opens up the possibility of reverse merger of the bank with the holding company which will do away with any possibility of sale of shares by the promoter entity in the future. Moreover, we remain positive on the bank given that the liability franchise has strengthened significantly under the new management.