Buy Federal Bank; target of Rs 175: ICICI Securities

ICICI Securities research report on Federal Bank

Federal Bank reported a healthy set of Q2FY24 numbers with strong loan/core fee growth and strong asset quality, though broadly stable NIM QoQ was bit softer. Despite strong deposits franchise, Federal’s NIM performance in the current cycle has been relatively soft, which seems partly due to the bank’s pursuit for growth and pressure on the share of CASA + granular deposits. The bank has relatively better digital capabilities, and post the recent capital raise appears poised to sustain aboveindustry credit growth. We raise our growth forecast and estimate the bank to deliver 18%/16% YoY growth for FY24/25. We expect the bank to report steady ~1.2% RoAs for FY24–25E with strong fee income broadly offsetting marginal decline in NIM.

Outlook

Maintain BUY with a target price revised to INR175 (earlier INR 155), valuing the stock at ~1.3x FY25E ABV (~1.2x earlier).

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