Prabhudas Lilladher's research report on Federal Bank
FB again surpassed its previous quarter best, with core earnings at Rs7.75bn, beating PLe by ~16% led by NIM beat which came in at 3.89% (PLe 3.66%) as funding cost was lower at 4.9% (PLe 5.1%). Bank further raised steady state NIM guidance from 3.30% to 3.35-3.40%. We too increase NIM for FY23E by 12bps and FY24/25E by ~6bps each as 1) high yielding book, which touched Rs62bn, could double in 2+ years and 2) upward deposit repricing could be slower to peers (~60% of deposits as at FY22 have a maturity >3 years). Fee income in 9MFY23 has risen by 43% to Rs12.9bn and bank expects current run-rate to continue.
Hence, we increase FY23 PAT by 6% and FY24/25E PAT by ~2% each. With consistent beat in core profitability, re-rating should continue for FB. Rolling forward to FY25E ABV, we raise TP to Rs175 from Rs165, maintaining multiple at 1.5x. Reiterate BUY.
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