Buy Federal Bank; target of Rs 260: Motilal Oswal

Motilal Oswal is bullish on Federal Bank recommended buy rating on the stock with a target price of Rs 260 in its research report dated October 26, 2025.

Broker Research

October 27, 2025 / 11:59 IST

Buy

26 Aug, 2025 12:21

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Motilal Oswal's research report on Federal Bank

Federal Bank’s pivot toward margin-accretive growth, strengthening its liability profile and improving fee intensity is now further bolstered by the proposed ~INR62b preferential capital infusion from Blackstone. This capital enhances the bank’s balance sheet flexibility and supports its journey toward structurally higher RoA. We estimate ~17% loan CAGR over FY26-28E, with the mix shifting towards better-yielding assets. With CASA-led liability improvement, calibrated build-out of high-yielding segments, and credit cost discipline, Federal Bank is progressing on a clear profitability path enabling RoA expansion over coming years. We estimate NIMs to improve gradually as the Blackstone infusion boosts capital ratios, which, along with the benefits from CRR cuts, enables higher LDR with a focus on high-yield segments like LAP, CV/CE, BB and gold loans. We estimate RoA to improve to 1.2%/1.4% over FY27/28E, with exit RoA potential of ~1.5%. We estimate ~29% PAT CAGR over FY26-28, supported by improving NIMs, fee intensity and stable asset quality. India’s policy shift is boosting foreign participation in the banking segment. Approvals for higher strategic ownership and marquee deals (Warburg–IDFCFB, ADIA–IDFCFB, Emirates NBD–RBL) reflect rising investor confidence and a more facilitative regulatory approach.

Outlook

We reiterate BUY with a revised TP of INR260, valuing the bank at 1.5x FY27E BV, factoring in enhanced capital strength, a steady earnings outlook and the sector-wide rerating potential from rising strategic foreign ownership in mid-size private banks.

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