Buy Federal Bank; target of Rs 170: Sharekhan

Sharekhan's research report on Federal Bank

Federal Bank reported strong beat (+7%) in PAT (up 25% y-o-y/ 6% q-o-q) mainly led by higher other income (treasury profits/stake sale gains from Fed Fina) and lower provisions, sustaining RoA at ~1.4%. NIMs frill marginally by 3 bps q-o-q to 3.19% (marginally better than expectation). Headline asset quality ratio remained stable despite higher slippages & lower recoveries sequentially. We believe return ratios for the bank has peak out in the near term. However, a meaningful reversal in return ratios is unlikely as the asset-quality outlook continues to remain strong. We believe now that the bank has fewer levers to surprise positively from here on in the form of operating leverage & core fee income.

Outlook

At the CMP, the stock trades at 1.1/1.0x its FY2025E/FY2026E BV estimates. We maintain our Buy rating on the stock with an unchanged PT of Rs. 170.

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