Buy Federal Bank; target of Rs 175: HDFC Securities

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HDFC Securities' research report on Federal Bank

Federal Bank (FB) reported its highest-ever quarterly earnings, largely on the back of strong loan growth (+20% YoY), margin expansion (+19bps QoQ), sustained fee traction and lower credit costs (38bps annualised). FB benefitted from a timing difference in asset/deposit repricing, offsetting higher employee opex (provision for wage revision) and higher provisions for security receipts as per the RBI circular. FB is confident of leveraging its differentiated FinTech ecosystem partnerships to clock market share gains in high-yield segments and driving further business productivity on both sides of the balance sheet. FB appears to be on track to deliver its targeted RoA of 1.25% for FY23 and is likely to clock a further 10bps RoA accretion over the next couple of years as the bank further calibrates the mix of high-yielding loans.

Outlook

We tweak our FY23E/FY24E earnings estimates to factor in lagged deposit repricing, offset by marginally lower provisions; maintain BUY, with a TP of INR175 (1.6x Sep-24 ABVPS).

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Federal Bank - 17 -01-2023 - hdfc