Motilal Oswal Says Buy This Largecap Banking Stock, Deposit Base Grew 10% YoY

Leading brokerage firm Motilal Oswal is betting on the stock of Federal Bank. Today, on October 3, the bank's share price closed at Rs. 116.90 a piece. Giving a buy rating the brokerage firm said, "Overall, FB posted robust growth in advances, aided by strong growth at the system level. Traction in deposits was encouraging given the stiff competition among banks to garner incremental deposits. CASA trends remained stable with a marginal decline to 36.4%, which coupled with improving loan growth and CD ratio should aid margins."

Financial performance

Federal Bank (FB) released a quarterly update emphasizing its Q2FY23 business numbers. Gross advances grew strongly at ~19.4% YoY to Rs. 1.64t and also reported a robust sequential growth of 6.2% (v/s 4.6% QoQ in 1QFY23).

The bank's retail credit grew 18.7% YoY, while its wholesale book posted a strong growth of 20.2% YoY. With this, the share of retail in total loan mix stood at 54% in 2QFY23. Total deposit base grew 10% YoY (3.2% QoQ) to Rs. 1.89t. Total customer deposits rose 8.5% YoY (2% QoQ) while CASA grew at 10.7% YoY (2% QoQ). As a result, CASA ratio declined 42bp QoQ to 36.41%. Growth in term deposit came in at 7.2% YoY and 2% QoQ (v/s 1.1% QoQ in 1QFY23). Certificate of deposit grew 117% YoY while interbank deposits rose 40.1% YoY. CD ratio for the bank thus improved ~250bp QoQ to 86.7% v/s 84.2% in 1QFY23 and 79.8% in 2QFY22.

Stock to buy: Federal Bank's performance on NSE

In the last 5 days, its share price has fallen 5.38% on NSE. However, its stock grew by 14.05% in the last 6 months, and surged 37.45% in the last 1 year. Its 52-week high range on NSE is Rs. 129.75, and 52-week low range is Rs. 78.60. It is a large-cap banking stock with a market capitalization of around Rs. 24,530 crore.

About the company

Incorporated on April 23, 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. Federal Bank is the preferred Personal, NRI and Business banking partner for a growing expanse of customers across India, in both urban and rural areas. The launch of digital products and digital marketing initiatives marked a strategic leap for the Bank to capitalize on the new realities more effectively, translating into an 86% share of digital transactions.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.