Federal Bank stock cracks nearly 13% post Q4 earnings; Deutsche Bank maintains buy

Net interest income (interest earned minus interest expended) grew 11 percent YoY to Rs 933.22 crore.

Despite the fall in net profit, some brokerages remain positive on the stock and maintain their buy rating, while others have reduced their target price.

Deutsche Bank maintains its buy rating on Federal Bank but has reduced its 12-month target price to Rs 120 per share from Rs 130 earlier.

“Despite a subpar performance for Q4 FY18, some positives can be taken from the show. The incremental book to better-rated borrowers is encouraging. The stressed pool has dwindled to 2.28 percent from 3.4 percent during March 2017,” Sharekhan said in a report. The management indicated there may be some positive news for the bank in this context in the next few months.

On the valuation front, Federal Bank trades at 1.5 times FY19e book which partly factors in disappointment on the asset quality front seen since the last few quarters. “While the near-term is expected to be volatile, we believe that H2 FY19e should see stability in asset quality performance, which will be positive for return ratios as well,” said the Sharekhan report.

The domestic brokerage firm maintains its buy rating on the stock but left unchanged its target price of Rs 120 per share which translates in an upside of 18 percent from current levels.