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Federal Bank Stock Hit 52-Week High Today After Net Profit Rallies 53% YoY: Buy, Says Brokerage
Federal Bank reported about a 53% YoY gain in its standalone net profit in Q2 FY23 to Rs. 703.7 crore from Rs. 460.3 crore in Q2 FY22. Additionally, today, on October 18, the bank's stock hit a fresh 52-week high, at Rs. 133.40 a piece. Emkay Global, a top brokerage firm recommends investors buying the stock of Federal Bank for high returns.
Stock To Buy: Target Price
The Current Market Price (CMP) of Federal Bank is around Rs. 131. Emkay Global has estimated a Target Price for the stock at Rs. 150. This stock has the potential to give a 14.7% return, in the upcoming 1 year. It is a bluechip stock with a market capitalization of around Rs. 28,152 crore.
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 131 |
| Target Price | Rs. 150 |
| Potential 1 year return | 14.70% |
| 52 week high share price | Rs. 133.40 |
| 52 week low share price | Rs. 78.60 |
Strong financials
Federal Bank reported a strong beat on PAT yet again, at Rs. 7bn. The bank has clocked 1.2% RoA in Q2 and is gaining confidence on growth/margins, given that it has upped its RoA guidance for FY22 to 1.2%. The bank delivered a strong 20% YoY/6% QoQ credit growth, mainly led by acceleration in the corporate book and continued traction in Retail/SME. This, coupled with continued asset re-pricing and lower NPA drag, led to healthy improvement in margins, by 8bps QoQ to 3.3%.
Stock Valuation
Giving a buy rating the brokerage firm said, "We revise our earnings estimate by 7% for FY23 and by 4% for FY24-25, factoring-in better delivery on margin/fees and expect RoA/RoE to steadily improve to 1.2%/16% by FY25E (ex capital raise). Potential value unwinding in the NBFC subsidiary (FedFina) via an IPO could be an additional catalyst for the stock and may help shore up the receding capital levels." However, key risks are higher relapse from the restructured pool and top management attrition.
NPA trend down
The bank's slippages moderated to Rs. 3.9bn/1.2% in Q2 due to lower slippages in Retail and relapse from the restructured book. This, along with better recoveries/w-offs, led to 23bps reduction in GNPA ratio to 2.5%. The restructured pool stood surprisingly flat QoQ at Rs. 39bn (2.4% of the loans); the bank expects the pool to decline, as it has started to come out of the moratorium, Emkay Global mentioned in a report.
Disclaimer
The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
