Federal Bank, one of the banking bets from Jhunjhunwala portfolio, continues to attract brokerage firms after a strong set of performance in the June 2024 quarter and appointment of new CEO by the Reserve Bank of India (RBI). Analysts have upped their target prices on the lender.
Federal Bank Ltd reported a standalone net profit of Rs 1,009.5 crore for the quarter ended June 30, 2024, up by 18.2 per cent on a year-on-year (YoY). Net interest income (NII) for the quarter stood at Rs 2291.98 crore, clocking a 19.46 per cent uptick Gross NPA of the bank stood at 2.11 per cent, while net NPA came in at 0.60 per cent, as of June 30, 2024.
Federal Bank reported strong Q1FY25 earnings, beating estimates by 7 per cent driven by PSLC income. Core profit is robust, driven by healthy asset growth and stable asset quality. NIM edged down 5 bps sequentially, but NII growth remained strong, said Nuvama Institutional Equities. Miscellaneous income shot up driven by PSLC income, it said.
"Credit cost and slippage rose on a low base, but remained contained. Federal’s Q1FY25 result is likely to be among the top two in its peer set. New CEO can strengthen product offerings and help improve RoA, which is lower than peers due to heavy de-risking. We are edging up the target price to Rs 235 at 1.5 times BV FY26E (from Rs 230)," Nuvama added, retaining ‘buy’ rating.
Shares of Federal Bank were trading flat around Rs 200-201 mark on Thursday, with its total market capitalization close to Rs 50,000 crore. The stock scaled its 52-week high at Rs 203.90 on Wednesday, but finally settled at Rs 201.45 in the previous trading session.
Shares of Federal Bank have gained nearly 55 per cent from its 52-week low at Rs 130 hit in August 2023. The stock has gained about 125 per cent in the two years, while the stock is up 30 per cent in 2024 so far.
Federal bank has posted a decent set of numbers for 1QFY25. NII for the quarter came in at Rs 2,300 crore, which is in line with estimates in spite of higher interest expended. NIMs were marginally lower, while CTI for the quarter was higher. PPoP came in at Rs 1,500 crore, said Centrum Broking.
"The prompt appointment of a new CEO will improve investor sentiment and stock valuation. This action is expected to effectively alleviate worries about leadership transition. We view this development very positively and have accordingly re-rated our P/B multiple for the stock from to 1.5 times on FY26E," it added with a 'buy' with a target price of Rs 232./
Federal Bank reported 18 per cent YoY earnings growth on the back of 15 per cent YoY operating profit growth. NIM was stable QoQ at 3.2 per cent with strong recovery in NII growth. Asset quality ratios remain impressive, said Kotak Institutional Equities.
"The bank has announced the new CEO who, we believe, has the ability to build on the work that has been done by the current team. We should see a relatively smooth transition going forward," it added and maintained a 'buy' with revised fair value of Rs 225 (from Rs 190 earlier).
Ace Dalal Street investor Rekha Rakesh Jhunjhunwala owned 6,16,09,060 equity shares, or 2.54 per cent stake, in Federal Bank as of June 30, 2024. Her stake in the company is worth more than Rs 1,225 crore as of Thursday.
Axis Securities believes that Federal Bank remains well positioned to deliver a sustainable RoA , improving NIMs backed by shifting portfolio mix towards higher-yielding products would be a key enabler for the bank to deliver and would drive the next leg of stock re-rating. It has a buy rating on the stock with a target price of Rs 230.
"As for now, we see the bank delivering RoA and RoE of 1.2 per cent and 13–14 per cent respectively over FY25–27. Though the upside remains limited in the near term, we retain 'buy' with a revised target price to Rs 220," said Antique Stock Broking.
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