Federal Bank sees Morgan Stanley, Citi cautious, despite positive Q4 updates; stock gains

In the last one year, Federal Bank stock has risen 21 percent, underperforming the benchmark Nifty 50 which rose around 30 percent during this period.

Federal Bank gained on April 3, a day after the lender announced that its gross advances surged 20 percent in Q4FY24 to Rs 2,12,758 crore. Its retail credit saw a growth of 25 percent on-year, while the wholesale credit book grew 15 percent.

Despite the growth, analysts at Morgan Stanley and Citi remain cautious on the Jhunjhunwala stock.

Federal Bank recorded an 18 percent spike in deposits in the March quarter to Rs 2.52 lakh crore, primarily driven by robust growth in term deposits. Customer deposits, meaning total deposits excluding interbank deposits and certificates of deposit, aggregated to Rs 2.40 lakh crore in the quarter, making a growth of 19 percent over the last year.

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Federal Bank's gross loan growth saw a substantial 20 percent YoY increase and the overall deposit growth remained healthy. However, the growth in CASA deposits remained subdued during this period.

Morgan Stanley has an 'equal-weight' rating to the stock with a target price of Rs 165 per share. The lender's Q4 business update indicates positive trends, with continued growth in both loans and customer deposits, the brokerage noted.

Citi has maintained a 'sell' rating on Federal Bank with a target price of Rs 135 per share. While the brokerage noted an uptick in advances growth and higher-than-expected deposits growth in Q4FY24, it believes that the trajectory of net interest margins will be crucial to monitor, with expectations of marginal improvement quarter-on-quarter.

Federal Bank's earnings are anticipated to be affected by wage revisions, potentially leading to an increase in the cost-to-income ratio, Citi said.

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At 9:31am, the Federal Bank shares were trading 0.7 percent higher at Rs 155.60 on the National Stock Exchange (NSE). In the last one year, the stock has risen 21 percent, underperforming the benchmark Nifty 50 which rose around 30 percent during this period.

As of December 31, 2023, the Jhunjhunwala family cumulatively owned 3.02 percent stake in Federal Bank.

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