Buy Federal Bank; target of Rs 125: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's research report on Federal Bank

The bank delivered an impressive asset quality performance, with GNPAs declining 12% QoQ in absolute terms (GNPA % down 44bp QoQ to 2.3%). Incremental slippages moderated to INR 2.44b from INR 2.73b in 3Q (annualized slippage ratio of 1.7% – lowest in last eight quarters), led by lower slippages in corporate and retail. Strong recoveries/upgradations and sale to ARC of INR 3.18b led to a decline in GNPAs.

Outlook

Considering asset quality distractions in the PSU space, we believe FB is well positioned to gain market share in highly rated corporates. The bank has board approval to raise INR 25b, and in the event of capital raise, tier 1 (currently 11.8%) should be strengthened further. We upgrade estimates for FY18/19 by 9-10%, and retain Buy with a TP of INR 125 (2x FY19 BV) based on RI model.

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