Lower provisions counterbalanced higher opex and lower non-interest income, which led to a sharp ~50% y/y increase in Federal Bank’s Q1 earnings. Slippages and restructuring at ~Rs13bn were lower than anticipated, given the high impact of the bank’s home state due to restrictions related to the pandemic and recent floods. With the lower formation of stress than earlier envisaged, recoveries in earnings would be better. Given the bank’s strong liability franchise and capitalisation, it is set to gain market share in the near term.
OutlookWe maintain our positive view on it with a Rs120 target, valuing it at 1x P/ABV on its FY24e book.
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