Buy Federal Bank; target of Rs 155: Motilal Oswal

Motilal Oswal's research report on Federal Bank

FB posted a mixed quarter, with in-line PAT and lower-than-expected NII. PAT grew 42% YoY to INR8.5b, aided by high other income (28% beat). The NII miss was due to a 16bp fall in NIM to 3.15%. The PCR was stable at ~71%. Gross advances grew 21% YoY, driven by a broad-based pickup in all business segments. Deposit growth too was healthy, aided by strong traction in term deposits. Thus, the CASA ratio moderated to 31.9%. Slippages came in at INR4.9b, led by a 77.6% QoQ increase in the retail segment. GNPA/NNPA ratios remained stable at 2.38%/0.69%, while restructured loans improved ~22bp QoQ to ~1.4%. FB reported RoA/RoE of 1.3%/15.7% in 1QFY24. We broadly maintain our estimates as controlled credit costs and healthy other income compensated for higher opex. We estimate FB to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our BUY rating on the stock.

Outlook

We broadly maintain our estimates as controlled credit costs and healthy other income compensated for a slight moderation in NII growth. We estimate FB to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our BUY rating with a TP of INR155 (1.2x FY25E ABV).

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