Motilal Oswal Places Buy On Midcap Banking Stock, Sees 22% Upside, Board Recommends 50% Dividend

Motilal Oswal has initiated a "Buy" on Federal Bank (FB) in its recent report. The brokerage has assigned a target price of Rs. 155/share on the stock, claiming a potential upside of Rs. 22% from its current level. FB is a midcap private sector banking with a market capitalisation of Rs. 27,013.64 crores.

On Friday, May 05, 2023, the stock recommended payment of a final dividend of Rs 1.00 per equity share of the face value of Rs 2 each i.e. 50% for the financial year 2022-23. The said dividend is subject to approval by shareholders at the Annual General Meeting.

Recommends 50% Dividend

"The Board of the Bank has also recommended the payment of final Dividend @ Rs 1.00 per equity share of the face value Rs. 2 each (50%) for the financial year 2022-23 subject to the approval of the Shareholders at the ensuing Annual General Meeting of the Bank," the bank said in an exchange filing.

Valuation and view

According to the brokerage firm, FB reported a mixed 4QFY23, with a beat in net earnings and a miss in NII. The earnings beat was driven by treasury gains and lower provisions, while the NII miss was due to margin compression. Business growth, though, was healthy, led by traction across segments. The liability franchise remains strong, with a retail deposit mix at ~85% and CASA ratio at ~32.7% (but moderated QoQ). The headline asset quality ratio improved, even as slippages came in a tad higher. "We broadly maintain our estimates as controlled credit costs and healthy other income compensate for a slight moderation in NII growth. We estimate FB to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our BUY rating with a TP of INR155 (1.2x Sep'24E ABV)," the brokerage has said.

Stock Outlook & Returns

The last traded share of Federal Bank is Rs. 127.75/share, down 8.36% from its previous close of Rs. 139.40/share. Its 52 week low is Rs. 82.50/share and 52 week high is Rs. 143.40/share, respectively.

The stock has fallen 5.34% in the past 1 week. However, it gained 35.69% in 1 year. It has given 197.44% positive return in 3 years and 27.69% positive return in 5 years.

Disclaimer - The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage 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.