Buy Federal Bank; target of Rs 175: Motilal Oswal

Motilal Oswal's research report on Federal Bank

FB reported a mixed quarter as net earnings beat our estimate by 6% driven by lower provisions and healthy other income (FedFina stake sale gains) but slippages increased while NIMs compressed 3bp QoQ. Advances growth was healthy at 18% YoY/3.3% QoQ, led by robust growth in retail and commercial banking. Deposits grew 19% YoY/2.9% QoQ, aided by continued traction in term deposits. Thus, the CASA ratio moderated 54bp QoQ to 30.6%. Slippages increased to INR4.8b, due to higher slippages in the corporate segment. GNPA/NNPA ratios were broadly stable at 2.3%/0.6%. Restructured book declined ~15bp QoQ to 1.1%. FB reported RoA/RoE of 1.4%/14.8% in 3QFY24. We fine-tune our estimates following the 3Q results and expect FB to deliver RoA/RoE of 1.3%/14.5% in FY25. We reiterate our BUY rating on the stock.

Outlook

We broadly maintain our estimates as controlled credit costs and healthy other income will keep earnings robust. We estimate FB to deliver RoA/RoE of 1.3%/14.5% in FY25. We reiterate our BUY rating on the stock with a TP of INR175 (1.2x Sep’25E ABV).