Is Federal Bank the safest mid-sized bank? Target prices for Jhunjhunwala stock

Federal Bank shares are in focus on Friday as the private lender's March quarter profit beat the consensus estimate by 6 per cent due to lower credit cost, lower provisions and higher recovery. The net interest income (NII), however, missed the consensus estimate by 4 per cent due to lower  loan-to-deposit ratio (LDR) and a small uptick in cost of funds. Post its quarterly results, analysts are largely positive on the Federal Bank stock. 

"We are raising the target to Rs 230/1.5 times BV (earlier Rs 215). Federal Bank is the safest mid-sized bank with a potential to deliver strong growth. The bank has already started delivering on its defined strategy with CA acquisition up 50 per cent over H1FY25, an uptick in self-funding and 19 per cent YoY growth in mid-yield loans. We maintain Buy," Nuvama said.

Federal Bank is aiming for high-teen loan growth in FY26, emphasising mid-yield segments such as gold loans, credit cards, and personal loans. CASA mobilisation remains a priority with a 3-year target to achieve a 36 per cent CASA ratio. Despite expectations of repo rate cuts, the bank is confident of maintaining NIM stability through strategic portfolio actions, Arihant Capital Markets noted.

MOFSL said Federal Bank's reported healthy quarter as lower provisions and healthy other income led to an earnings beat. Margins stood broadly flat sequentially, it said adding that the deposits growth was steady as the bank focused on current account deposits (up 27 per cent YoY), which led to a marginal improvement in the CASA ratio. 

"Opex stood elevated as the bank continued to invest in branches, people, and technology. Asset quality remained steady with credit costs remaining in control, while PCR improved to 76 per cent. We believe that FB is well-placed among mid-sized private sector banks to deliver a healthy earnings trajectory," MOFSL said.

This brokerage reiterated its 'Buy' rating with a target of Rs 230. 

JM Financial is not so bullish on the stock. It said stress in the MFI segment remains a cautious area for the management and expects net interest margin (NIM) to remain under pressure. It is building in 15 per cent loan CAGR during FY25-27 and average RoA and RoE of 1.2 per cent and 12.5 per cent, respectively, during the same period.

"Considering the expected growth/RoE profile, current valuation of 1.1 times FY27E BVPS appears reasonable. We maintain our HOLD rating with an target of Rs 200 (valuing core bank at 1.1x FY27E BVPS)," JM said.