Shares of Federal Bank Ltd jumped 7 per cent in Tuesday's trade, as the private lender's Q2 results met Street estimates, thanks to higher other income that was offset by lower margins, owing to reclassification of penal charges. Credit costs continued to be stable, analysts said, as they suggested price targets for Federal Bank in the Rs 225-250 range.
On Tuesday, Federal Bank shares rose 7.06 per cent to hit a high of Rs 197.75 on BSE. The stock is up 26 per cent year-to-date.
Deposit growth at 15.6 per cent YoY was sluggish as the Jhunjhunwala-backed Federal Bank focused on improving low-cost deposits and managed to improve its CASA to 30.1 per cent. Rekha Jhunjhunwala held 1.46 per cent stake in Federal Bank as on September 30.
"Federal Bank has broken through the mid-sized banks league and has steadily narrowed the gap with larger peers. The management team, under the leadership of KVS Manian, the new MD & CEO, is slated to present a new strategy to the Board in December 2024," HDFC Institutional Equities said.
Calling Federal Bank's granular deposit franchise 'best-in-class', the brokearge said a carefully-crafted accident-free loan book and investments in the right areas can help Federal Bank build further core strengths and plug key gaps around pricing power to emerge as a one-of-its-kind, credible alternative to the larger private sector banking peers. The brokerage suggested a target price of Rs 225 on the stock.
"Given healthy growth and strong asset quality, we maintain ‘BUY’. We believe Federal not only has a strong CEO but a sound management team. Our target price stands unchanged at Rs 235," Nuvama said.
Centrum Broking said the management expects the momentum of growth and profitability to continue on the back of its retail franchise. But it has factored in a slight NIM moderation to factor in competitive scenario and operating leverage (linked to maturity of branches) and normalisation of credit cost.
"Resultantly, we bake in AUM/PPOP/PAT CAGR at 19-21 per cent over FY24-27E and expect RoA/RoE to be maintained at 1.3 per cent/15 per cent. We maintain our Buy rating, with a revised target price of Rs 250, assigning a 1.5 times multiple to 1HFY27E ABV," Centrum said.