Sharekhan's research report on Federal Bank
Core operating profit growth declined 3% q-o-q, led by weak NII and higher opex however earnings were better than estimates mainly led by lower credit cost driven by a lumpy recovery in corporate loans. Loan growth was modest at 12% y-o-y/2% q-o-q, while deposit growth improved sharply by 6% q-o-q led by some seasonal flows. Bank is expecting better loan growth in FY26E over FY25 with faster growth in mid-yielding segment and a gradual pick-up in high yielding segment. Asset quality improved led by higher recoveries and contained slippages. The bank guided that credit card/personal loan portfolio has stablised but MFI would stablise over the next few quarters. Credit cost guidance remains at 40-45 bps of average loans.
Outlook
We remain assertive from a medium to long-term perspective and thus maintain buy rating on the stock with an unchanged PT of Rs. 220. Stock trades at 1.3x /1.2x its FY2026E/ FY2027E BV estimates.
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