Buy IDFC around Rs 161; target Rs 180: ICICIdirect.com

IDFC  is a good candidate for short covering. It had witnessed significant short additions in the last couple of series. Recently, when it underperformed the broader market, the short build-up increased. The stock open interest has gained more than 34 percent from the highest OI seen in the April series. However, the stock had major support at Rs 147, which it did not breach in May despite repeated jitters. We believe this set the stage for good short covering in the stock when the Nifty surpassed its major resistance of January highs



The BFSI space is finding fresh momentum. The leader of the BFSI segment, HDFC Ltd, has made its new lifetime high and continues to sustain above these levels. Hence, we expect a catch-up exercise from its peers like IDFC in the near term. In such a scenario, the stock may head towards its previous highs of Rs 180.

IDFC has surpassed its highest Call base of 160 strike. Closure of these positions should provide fresh momentum to the stock. At the same time, continuous addition at Put ATM strikes indicate prevailing support on downsides. Currently, noteworthy open interest has been accumulated at the 150 Put strike, which is expected to act as a strong support level in the near term

During the recent leg of profit booking, on downsides, it observed cash based buying support near Rs 150. Moreover, from the beginning of the May series, the stock has witnessed strong delivery based volume in the range of Rs 147-155

Fundamental Outlook:

IDFC is one of the specialised infrastructure-financing companies in India catering to private sector players. It has grown its credit book at a healthy pace of 23 percent CAGR to Rs 55737 crore over FY08-13 and continues to grow in the long term. However, with the infrastructure sector witnessing a slowdown, we are factoring in modest credit growth in the near term at 15.4 percent CAGR to Rs 74814 crore over FY13-15E. NIM has been maintained consistently at healthy levels of ~4 percent. With ALM matched very closely, spreads have remained stable at ~2.5 percent over time in spite of interest rate movements. It has a well-managed asset book with GNPA ratio of 0.15 percent and NNPA ratio of 0.05 percent. The return ratios are strong with RoA of 2.8 percent for FY13 while RoE may sustain at 14-15 percent as its leverage (low at 5.2x now) may improve over time.

Recommendation: Buy IDFC in cash in the range of Rs 157-161 for price target of Rs 180 with a stop loss of Rs 147 (Time Frame: 3 months)