At a recent strategy meet, Federal Bank under MD & CEO KVS Manian shared a roadmap for the next 3 years, highlighting 12 themes to ratchet up the bank’s return on asset (RoA) to the level of top six banks by FY28. The lender is benchmarking itself with top six private sector banks and aims to position itself in between the best three private banks and the next three private banks on various parameters. Stock analysts said the strategy is well-charted but all eyes are on execution ahead.
"We tweak our estimates (still conservative), and raise SOTP based target to Rs218 (21 per cent upside). Post 17 per cent correction in stock price, risk-reward is favourable, and we upgrade our rating to Buy," said IIFL Securities..
With a legacy spanning over 93 years, a dominant presence in Kerala, and a refreshed focus on becoming a more comprehensive bank, Federal Bank is charting a path of sustainable growth, profitability, and technological advancement, said MOFSL.
MOFSL said the bank has emphasised scaling its operations prudently by prioritising better-yielding loans, enhancing its liability franchise, and leveraging digital capabilities. It maintained 'Buy' on the stock with a target price of Rs 225.
"In our view, the bank has come out with a well-crafted strategy of focusing on leveraging its existing strengths and taking it forward from here by aiming to close the gaps in terms of products, new businesses, customer segments and geographies. However, execution will be key here. We continue to maintain 'BUY' on Federal Bank with an unchanged target price of Rs 226," Nirmal Bang Institutional Equities said.
The private lender is looking to become the SME bank of choice by establishing best in class SME banking ecosystem with a differentiated value proposition. On the corporate and institutional banking side, the focus is on high growth mid-market businesses. Federal Bank is expanding offerings in wealth management, capital markets and premium savings solutions for both NR and domestic clients.
It believes the NRI business is a moat that the bank has created over a long period of time, with 20 per cent of the remittances into the country happen through Federal Bank. Going ahead, it is aiming to unlock NR growth beyond Kerala and GCC nations and enhance it by wealth offerings.
Nuvama Institutional Equities said improving the share of CA by 4 per cent would be the key focus, followed by a greater mix of medium-yielding assets, higher fees and some cost efficiencies despite accelerated investments.
"The bank would accelerate investments in products, digital and physical distribution. New products shall be launched with special focus on wealth, affordable housing, used CVs and tractors. Loan growth to be 1.5 times nominal GDP," it said.
Given Federal Bank’s stable asset quality and higher-than-sector growth, this brokerage suggested a ‘Buy’ with an unchanged target price of Rs 215. Effective execution of the new strategy would provide room for a re-rating, it suggested.
Manian launched a 12-themed business strategy with the objective of creating a truly national franchise, becoming a universal bank, changing the legacy perception of the bank and positioning, using the high NPS to create more business and leveraging low attrition rates to improve performance.