Emkay Global Financial' research report on Federal Bank
We met new MD and CEO KVS Manian and Consumer Banking Head Virat Diwanji (ex-KMB), who gave assurance of their unwavering focus on addressing Federal Bank (FB)’s long-time pain point (margin) mainly via CASA acceleration (to 36%, from 30% now) and portfolio mix toward medium-to-high yielding assets; this would help deliver a healthy 1.2-1.4% RoA. The management has given guidance of calibrated growth and higher cost-income ratio in the near term, as it builds its team, re-orients/expands liability franchisee and expand credit/fee product basket, and consequently prepare for the next leg of sustainable and profitable growth. Over the years, FB has emerged as a conservative and stable banking platform with virtually no accidents.
Outlook
However, we believe the time is ripe for it to up its game amid struggles at a few other banks (IIB, Yes) and with onboarding of a new credible management; retain BUY and TP of Rs240, implying 1.4x FY27E ABV, and subs value of Rs12/sh.
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