3 Brokerages Give A Buy On This Private Sector Bank Stock

Several brokerages attended the analyst day of Federal Bank Limited, among them, three leading stock broking firms have given a buy recommendation on the bank stock. Motilal Oswal, Prabhudas Lilladher and Sharekhan has asked investors to buy shares of Federal Bank as they see potential upside.

Federal Bank Limited, is one of the oldest private bank from the pre-independence era. It was incorporated on 1931, as the Travancore Federal Bank Limited, Nedumpuram under the Travancore Companies Regulation, 1916, the Bank was renamed as The Federal Bank Limited in December 1949, under the stewardship of K.P. Hormis, who took over its reigns in 1945.

Licensed under the Banking Regulation Act, 1949, on July 11, 1959, the Bank went on to become a scheduled commercial bank on July 20, 1970. It is headquartered in Aluva,Kochi, Kerala and is currently the fourth largest bank in India in terms of capital base.

Federal Bank's Q3FY23 financial performance was good, it reported the highest ever quarterly profits due to all round operating performance. Its operating profit was reported at Rs 1274.21 crore, grew 39% yearly, net profit was up by 54% at Rs 803.61 crore, and it net interest margin improved to 3.49%, higher by 22bps YoY and 19bps QoQ (35 Qtr High).

The bank's credit growth was robust; SME book grew by 20%, Retail, commercial credit and business banking book was up by 18% each yoy, Corporate book was up by 19% YoY and CV/CE business grew by 65% yearly basis.

Motilal Oswal's view: Buy stock, with a price target of Rs 170 per share (32% upside)

As per the brokerage coverage, "We believe that Federal Bank is well placed to deliver RoA expansion, led by controlled credit costs and a rise in the mix of high-yielding segments. Moreover, the bank's strongliability franchise will help it lower the cost of funds, which should support margins. Federal Bank plans to add branches in a calibrated manner and improve its digital capabilities, which should drive operating leverage. We estimate an earnings CAGR of 16% over FY23-25 with RoA/RoE of 1.3%/15.2% by FY25. We have a BUY rating on bank with a price target of Rs 170 (1.4x Sep'24E ABV)."

Prabhudas Lilladher's View: Buy shares with a target price of Rs 175 per share (35.66% upside)

According to the brokerage report "Key levers for RoA expansion would be to maintain pristine asset quality, consistently grow business with digital focus, enhance share of higher NIM lending segments by leveraging fintech partnerships, increase fee to assets (add 10bps every year) and improve efficiency. For next 3 years, bank is targeting to double higher yielding segments that contribute 20.53% to loans, compared to overall loan growth guidance of high teens. Share of these segments would rise to 25% suggesting ~15bps NIM improvement, over steady state level of 3.35%. If bank achieves its revenue related targets, core earnings for FY24/25E could see a 10-15% upgrade leading to FY25E RoA of 1.4% (vs 1.2% now). Our FY24/25E earnings estimates remain unchanged. We maintain multiple at 1.5x FY25E ABV and target price at Rs175; current valuation at 1.1x is attractive. Retain BUY."

Sharekhan's view: Buy shares, with a price target of Rs 170 per share (31.78% upside)

We believe now consistent steady performance along with improvement in ROA on guided lines could drive re-rating in the stock going forward. The bank is confident about the strong business outlook. Margin outlook remains stable with positive upward bias as delay in rate hike pause along with improving retail mix would offset increase in cost of deposits. Asset quality outlook continues to remain stable to positive for the sector. We believe strategy to scale up the key outlined business segments would require at least one asset-quality performance test during the downcycle to derive comfort. Right now, sectoral tailwinds are in favour. At CMP, the stock currently trades at 1.1x /0.9x its FY2024E/ FY2025E BV estimates. Valuations appears inexpensive vs ROA trajectory expected ~1.3-1.4% in near term." as recommended by the brokerage.

The current market price of share of Federal Bank Limited is Rs 134.40 per share, it ended 4.11% above previous day. Its 52-week high and low is at Rs 143.35 and Rs 82.50 per share. In last one year the price has risen by 40.44% and in three years it jumped up 61.73%.

Disclaimer:

The stock has been picked from the brokerage report of Sharekhan, Prabhudas Lilladher, and Motilal Oswal. Greynium Information Technologies and the Author, and the respective Brokerages house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.