Buy Federal Bank; target of Rs 160: Axis Securities

Axis Securities report on Federal Bank

Federal Bank (FB) reported credit growth of 21%/5% YoY/QoQ. The management stated that growth has been broad-based not only geographically and segmentally but also product-wise. In Q1FY24, the contribution of higher-yielding portfolio improved to ~34% of the total portfolio vs. ~33% YoY. NII grew by 25% YoY but remained flat on a QoQ basis. In line with our expectations, NIMs contracted by 16bps QoQ and stood at 3.15% vs. 3.22/3.31% YoY/QoQ. Strong core fee income (+21% YoY/flat QoQ) and treasury gain supported growth of non-interest income (+62% YoY, flat QoQ). Opex growth stood higher at 24%/3% YoY/QoQ and was driven by higher employee costs. Credit costs continued to remain benign (35bps vs. 27bps QoQ). Asset quality remained stable with GNPA/NNPA at 2.4%/0.7%. Slippages inched up during the quarter with higher slippages from the retail pool (~30% of which were from the restructured pool). The restructured book tapered to 1.4% from 2.2%/1.6% YoY/QoQ.

Outlook

The stock currently trades at 1x Sep’24E ABV and we value the stock at 1.25x FY25E ABV to arrive at a target price of Rs 160/share, implying an upside of 26% from the CMP. We reiterate a BUY on the stock.