Buy Federal Bank; target of Rs 220: Prabhudas Lilladher

Prabhudas Lilladher's research report on Federal Bank

FB reported a soft quarter as core PPoP at Rs12.6bn missed PLe by 11% driven by 4.2%/3.9% miss on NII/opex. However, lower provisions (led by corporate recovery) cushioned core PAT which met PLe at Rs8.7bn. In-line with its stated strategy, CA accretion was healthy QoQ. NIM may moderate as 50% of loans are EBLR linked with a T+1 reset. However, it may be cushioned by 1) shift to higher yielding segments 2) change in EBLR reset dates for new disbursals to T+90 and 3) growing fixed rate loans at a higher pace. Opex has been a drag; while the bank has guided for a flat cost to income in FY26 vs FY25, we expect that investment in branches and technology may keep opex elevated over the near term.

Outlook

We trim core PAT for FY26/27E by avg. 6.5% as we cut NIM by 5bps and slightly increase opex. We maintain multiple at 1.3x but our TP increases to Rs 220 from Rs 210 as we roll forward to Mar’27 ABV. Retain ‘BUY’.