Buy Federal Bank; target of Rs 240: Emkay Global Financial

Emkay Global Financial is bullish on Federal Bank has recommended buy rating on the stock with a target price of Rs 240 in its research report dated January 29, 2025.

Broker Research

January 31, 2025 / 22:00 IST

BUY

26 Aug, 2025 12:21

Volume

Todays L/H

Emkay Global Financial's research report on Federal Bank

Under new MD Manian (ex-Kotak), Federal has adopted a risk calibrated growth strategy from 3Q itself (down to 16% YoY from a high of 19-20%), and made accelerated provisions (Rs2.9bn) leading to a 10% miss on PAT at Rs9.6bn (1% RoA). The bank plans to re-orient its asset/liability profile and, in the initial phase, has already slowed down growth in unsecured loans (ex-Cards) and the low-yielding home loans, while shifting new auto loans to a fixed rate, trimming the LCR impacting deposits from FIs (EOP LCR up at 133%), and enhancing focus on building granular retail/CASA deposits. We like the new MD’s strategy of focusing on sustainable growth/profitability (RaRoC) vs short-term optics, thus calling for management premium, unlike in the past. Factoring in the growth calibration and slightly higher LLP,

Outlook

We cut earnings by 6-11% and expect RoA to moderate to 1.2% in FY25-26E before rebounding to 1.3% in FY27E led by better risk adjusted margins. We trim TP by ~11% to Rs240 (based on 1.4x Dec-26E ABV and subs at Rs12/sh) from Rs270, but retain BUY.

For all recommendations report, click here