Sharekhan's research report on Federal Bank
PAT at Rs. 955 crore (down 5% y-o-y) lagged estimates mainly led by higher credit cost. The bank took accelerated provisioning on the unsecured NPA retail accounts. Overall PCR improved to 75% versus 73% q-o-q. Slippages were slightly higher led by the retail & agri portfolios but were offset by higher recoveries thus net slippages in absolute terms were stable q-o-q. The bank does not expect slippages to materially rise as unsecured portion is low and guided for 40-45 bps credit cost going ahead. Loan and deposit growth were subdued q-o-q as the new MD & CEO is recalibrating asset as well as liability mix. Over the medium term, bank is confident to grow at 1.5x of system growth.
Outlook
Stock trades at 1.4x/1.2x /1.1x its FY2025E/FY2026E/ FY2027E BV estimates. We maintain our Buy rating on the stock with a revised PT of Rs. 220. The pivoting efforts are right steps to improve risk-adjusted returns needed for re-rating and outperformance in the medium term.
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