Buy Federal Bank; target of Rs 220: Prabhudas Lilladher

Prabhudas Lilladher's research report on Federal Bank

FB saw a soft quarter due to weaker NII/NIM and asset quality. Agri/MFI stress led to GNPA blip (provisions at 69bps vs avg. 40-45bps). Additional stress may be lower, though credit costs may remain elevated in Q2’26 due to lag effect. While FB is undergoing transition due to focus on improving asset-liability mix, there could be short term challenges due to NIM pressure and elevated credit costs. However, as earlier guided, momentum in fees was intact and asset mix improved QoQ with lower share of EBLR loans which may protect NIM. Fee growth is guided to be higher than loan growth. Branch objectives are being realigned, which coupled with technology could enhance operating efficiency.

Outlook

We trim core PAT for FY26/27E by avg. 4.0% as we cut FY26 NIM by 9bps. We maintain multiple at 1.3x on FY27 ABV and TP at Rs220. Retain ‘BUY’.