Buy Federal Bank; target of Rs 149: Motilal Oswal

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Motilal Oswal's research report on Federal Bank

FB recorded PPoP growth of -4%/18% QoQ/YoY (INR5.6b; 4% miss), driven by a 5% miss on total income (24% beat on other income, which declined 20%/13% QoQ/YoY to INR2.29b). The impact, however, was partly offset by a 5% beat on opex, which grew 2%/4% QoQ/YoY to INR6.2b, as employee expenses fell 4%/6% QoQ/YoY. Core PPoP growth was strong at 5%/37% QoQ/YoY. NII growth came in at 6%/20% QoQ/YoY (1% beat), aided by 22% YoY loan growth and a stable NIM of 3.33% (+2bp QoQ). Other income fell 20%/13% QoQ/YoY, driven by sharp moderation in treasury gains (-61%/-66% QoQ/YoY). Loan growth of 5%/22% QoQ/YoY was driven by corporate book growth of 30% YoY. Retail/agri and SME loans also maintained strong traction (up 18% and 20% YoY, respectively).  Asset quality deteriorated slightly due to a spike in education loan slippages (INR710m out of total retail slippages of INR1.5b). Total slippages at 1.94% (1.4% in 2QFY18) led to an 11% QoQ increase in GNPA to INR21.6b. However, the bank has up-fronted provisions toward education loans, taking PCR to 46.5% from 45.3% in 2QFY18. GNPA/NNPA declined to 2.51%/1.36% (+12bp/+4bp QoQ). Recoveries and upgrades increased 35% QoQ to INR2.2b, while write-offs were negligible at INR10m. Other highlights: a) Business growth is picking up outside Kerala, with 38%/40% YoY growth in retail/SME loans. c) CASA ratio stayed stable sequentially at 32.96%.

Outlook
We believe FB’s asset quality concerns, which are largely legacy issues, are now mostly behind. The bank is ahead of its corporate lending peer banks on the asset quality curve, especially with its opportunistic entry into the mid-commercial segment. Considering asset quality distractions in the PSU space, we believe FB is well positioned to gain market share in highly rated corporates. We largely maintain estimates for FY18/19, and reiterate Buy with a target price of INR149 (2x Sept 2019 BV) based on the RI model.
For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More