Buy Federal Bank; target of Rs 155: Axis Securities

Axis Securities is bullish on Federal Bank has recommended buy rating on the stock with a target price of Rs 155 in its research report dated July 04 2023.

Broker Research

July 04, 2023 / 18:03 IST

Buy

Axis Securities report on Federal Bank

Credit growth momentum remains healthy – The bank reported a healthy advances growth of 21/5% YoY. Growth in both the Retail and Corporate segment continued to remain healthy at ~20/22% YoY respectively. The mix of Retail to Corporate has remained stable at 54:46 YoY/QoQ. A key monitorable for the quarter would be the growth in the higher-yielding segments and their improving mix in the portfolio as they remain a key lever in improving the margins for the bank. Deposits growth strong; primarily led by TDs – Federal Bank’s deposits growth was strong at 21/4% YoY/QoQ. Deposits growth was primarily led by TDs while CASA deposits growth took a backseat. CASA Deposits grew by 5%/2% YoY/QoQ, while TD growth was robust at 30/6% YoY/QoQ. Resultantly, CASA Ratio (at a multi-quarter low) stood at 31.9% vs. 36.8/32.7% YoY/QoQ. As stated by the management previously, the CoF during the quarter will continue to inch up as the balance of the deposit base gets repriced.

Outlook

Business growth continues to remain robust with no visible sign of slowing down so far. While margins could remain soft in H1FY24, improving the share of higher-yielding products in the portfolio mix along with stabilising CoF are likely to aid margins in H2FY24. We remain confident in FB’s ability to deliver a consistent RoA of 1.3% despite margin pressures. The current valuations of 1.1x Sep’24E ABV are undemanding for an expected strong RoA/RoE delivery of 1.3%/15-16% over the medium term. We re-iterate a BUY on the stock with a target price of Rs 155/share, implying an upside of 22% from CMP.

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