Motilal Oswal's research report on Federal Bank
Federal Bank (FB) reported 1QFY26 earnings of INR8.6b (6% miss) amid a spike in provisions (up 177% YoY/190% QoQ), partly offset by contained opex. NII was in line, while reported NIM contracted 18bp QoQ to 2.94% (MOFSLe: 2.96%), amid repo rate cuts as well as interest reversal (4-5bp impact). FB remains focused on reorienting its asset mix to improve yields and CASA mix. Advances grew 9.2% YoY/2.7% QoQ, led by growth in SME (CoB + BuB), CV, and Gold. Deposits grew 8% YoY/1.3% QoQ. The CASA ratio stood at 30.4%. Slippages were elevated at INR6.6b (up 56% YoY/34% QoQ), amid elevated slippages from the MFI book. GNPA/NNPA ratios increased 7bp/ 4bp QoQ to 1.84%/0.44%. The bank’s credit costs increased 39bp QoQ to 0.65%.
Outlook
We reduce our earnings estimates by 7%/4% for FY26/27, factoring in a slight margin contraction and elevated provisions. We estimate FB to deliver an FY27 RoA/RoE of 1.18%/13.0%. Reiterate BUY with a TP of INR235 (based on 1.4x FY27E ABV).
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