Buy Federal Bank; target of Rs 180: Emkay Global Financial

Emkay Global Financial's research report on Federal Bank

Despite slower NII growth at 9% YoY and, hence, softness in NIM (down 36bps YoY/3bps QoQ to 3.19%), Federal Bank has once again reported a beat on PAT, of 6%, at Rs10.1bn/1.3% RoA, mainly due to lower provisions. Bank saw a oneoff gain from the Fedfina stake sale (Rs0.9-1bn) in 3Q which was partly evened out by the recent wage revision. Going forward, staff cost may remain elevated in 4Q due to impact of the wage revision on retirement liability, while the bank may also take some hit on AIF. Slippages during 3Q were slightly higher due to stress in the corporate pool (a chemical a/c), but Bank expects overall asset quality, as also the provisions, to stay well under control, thereby supporting profitability.

Outlook

We expect the bank to deliver healthy RoA of 1.3-1.4%/RoE of ~14% on the expanded equity base post the recent capital raise. Bank has initiated the process to identify a new MD & CEO after RBI’s recent rejection to extend the incumbent MD’s term post Sep-24. We retain BUY with TP of Rs180/sh, implying 1.1x core bank Dec-25E ABV and Rs13/sh subsidiary value.