Buy Federal Bank; target of Rs 170: Sharekhan

Sharekhan is bullish on Federal Bank has recommended buy rating on the stock with a target price of Rs 170 in its research report dated October 04, 2023.

Broker Research

October 05, 2023 / 15:42 IST

Buy

live

bselive
nselive

Volume

Todays L/H

Sharekhan's research report on Federal Bank

The bank reported solid loan growth of 20% y-o-y/5% q-o-q in Q2FY24 and loan growth has been broad based across retail (22% y-o-y) and wholesale (17% y-o-y) segment which is a key positive. Deposits grew by 23% YoY/5% q-o-q mainly led by strong growth in retail term deposits and wholesale deposits. CASA growth remained tepid, grew by 5% YoY/3% QoQ. CASA ratio at 31.17% vs 36.41% y-o-y. Retail term deposits grew by 28.1% YoY/ 4.9% q-o-q. Wholesale deposits grew by 15.4% q-o-q. NIMs are expected to bottom out in H1FY24 and expected to see gradually rebound in H2FY2024. At the CMP, the stock trades at 1.2x/1.1x its FY2024E/FY2025E BV estimates. Valuations are still reasonable and the stock remains our top pick in mid-tier private banks along with IndusInd Bank.

Outlook

We reiterate a Buy on Federal bank with an unchanged PT of Rs. 170. The bank is likely to sustain a RoA of over ~1.2% led by strong loan growth, healthy fee income and benign credit cost despite NIM pressure in near term, which should translate into normalised RoE of ~15%.

For all recommendations report, click here