Buy Federal Bank; target of Rs 275: ICICI Securities

ICICI Securities's research report on Federal Bank

Federal Bank (FB) has approved up to 9.9% stake dilution to a Blackstone managed fund (fund) via preferential issues of warrants. The transaction would boost pro forma CET 1 by ~280bps (over the next 18 months) and FY27E ABV may rise by ~4%. FB has done reasonably well on NIM (12bps QoQ uptick in Q2FY26) and credit costs (now in mid-50s, after a minor spike in Q1FY26); although, loan growth has slowed to 6% YoY. The moderation stems mainly from a mix change, away from low-yielding assets. While the mix change may persist in the near term, loan growth seems to have bottomed out and the proposed infusion improves medium-term growth visibility. We remain vigilant towards capital allocation, as FB may look to invest into new businesses, including non-lending/inorganic ones. Maintain BUY with a revised TP of INR 275, valuing the stock at ~1.6x FY27E ABV.

Outlook

We increase our target multiple further to ~1.6x FY27E (~1.4x earlier), as the proposed transaction is ABV accretive and improves growth visibility/operating leverage. Maintain BUY with a revised TP to INR 275 (earlier INR 250).