Federal Bank shares fall 4% ahead of Q1 results. What analysts say on Jhunjhunwala-backed lender

Shares of Federal Bank fell slipped over 4 per cent in Thursday's trade ahead of the private bank's June quarter results scheduled for later in the day. Ahead of its quarterly results, the Rekha Jhunjhunwala-backed private bank reported a 20.9 per cent year-on-year (YoY) surge in gross advances in the December quarter.

In its June quarter update, the bank said its gross advances grew 20.9 per cent to Rs 1,86,593 crore on June 30 from Rs 1,54,392 crore in the year-ago period. As per internal classification, retail credit book grew 20.2 per cent and wholesale credit book grew 21.6 per cent, Federal Bank said adding that retail-to-wholesale ratio stood at 54:46.

Sharekhan expects profit for the quarter to surge 31 per cent YoY to Rs 787 crore from Rs 601 crore in the year-ago quarter. Net interest income (NII) is seen rising 21.4 per cent to Rs 1,948 crore from Rs 1,605 crore. Jhunjhunwala held a total 3.48 per cent stake in the bank.

Morgan Stanley expects margins for Federal Bank to moderate 10 bps sequentially to 3.20 per cent as funding costs rise. This will be partly offset by benefits from the repricing of loans and a mix shift towards higher-yielding assets, it said,

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NII growth should moderate to 21 per cent YoY against 25 per cent YoY last quarter, it said.

"Fee income growth should remain healthy at 30 per cent YoY vs 34 per cent YoY last quarter. We expect cost growth of 18 per cent YoY vs 10 per cent YoY last quarter. Consequently, we expect core PPoP of Rs 1160 crore (29 per cent YoY) vs Rs 1,120 crore last quarter. We expect normalised asset quality trends with slippages of Rs 450 crore (1.2 per cent of trailing loans, annualised), steady vs last quarter. Expect credit cost to remain benign at 47 bps vs 28 bps last quarter," Morgan Stanley said.

The stock fell 4.43 per cent to hit a low of Rs 128.25 on BSE. It is down 6.47 per cent year-to-date.

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