The private lender, which had announced its earnings on Friday, reported a 63.53 per cent year-on-year (YoY) rise in net profit at Rs 600.66 crore compared with Rs 367.29 crore in the same quarter last year.
Interest earned for the quarter rose 8.14 per cent YoY to Rs 3,628.86 crore against Rs 3,355.71 crore in the corresponding quarter last year. Net interest income (NII) came in at Rs 1,605 crore compared with Rs 1,418 crore YoY.
Brokerages are expecting a 25-45 per cent rally in the private lender. Federal Bank has advanced more than 20 per cent the last month, suggests data.
LKP Securities, which has a buy call on the stock with a target of Rs 124, said the bank’s 1QFY23 earnings were in line with expectations, thanks to improved NPAs and strong NII growth provisioning for expenses, credit growth and strong return on assets.
However, it highlighted higher slippages and lower other income because of lackluster treasury and forex income as the major disappointments. “The bank’s credit quality is in check with no major hiccups,” it added.
Provisions and contingencies fell sharply to Rs 166.68 crore from Rs 639.94 crore YoY. Gross non-performing assets (GNPA) came in at 2.69 per cent in the June 2022 quarter as against 2.80 per cent in the March quarter and 3.50 per cent in the year-ago quarter.
YES Securities is the most bullish on the private lender after Q1 earnings, with a target price of Rs 142 on the stocks, signalling a 44 per cent upside in the counter from its previous close.
The brokerage said that slippages rose moderately on a sequential basis due to restructured books, as per the guidance and no change in NIMs. “The wholesale segment outperformed sequentially, and core retail loan growth was also healthy.”
Another domestic broker
sees compression in NIMs and higher stress than expected as the key risks for the lender. Despite this, the brokerage has a target price of Rs 125 with a buy call.
“Federal Bank sustained an RoA of over 1 per cent for the third consecutive quarter,” ICICI Securities said. The lender’s performance showcases strong asset franchise and business resiliency.
Credit growth improved on the back of the management’s successful execution of its new business strategy revolving around scaling up new products, focusing on profitability and derivation of synergies from fintech partnerships, it added.
The lender’s loan book grew 16 per cent YoY to Rs 1.54 trillion, with the CV/CE segment growing 56 per cent, retail growing 14 per cent, auto loans growing 24 per cent, and gold loans growing 17 per cent.
On the other hand, deposits grew by 8 per cent YoY to Rs 1.83 trillion. The current account savings account (CASA) deposits reached Rs 67,540 crore, and the CASA ratio stands at 36.84 per cent.
With asset quality headwinds largely behind and on improving trajectory, Federal Bank is focused on improving its RoA/RoE profile through accelerating growth, improving the mix of higher-yielding Retail/CV/Credit cards in its portfolio and moderating Opex, said Axis Securities.
The brokerage believes in the valuations of the lender and has a buy call on the counter with a revised target price of Rs 125. “We expect slippages to moderate and should support earnings growth moving forward,” it added.
Federal Bank reported strong earnings yet again as core PPoP was a beat led by better loan growth and fee income while opex was lower as rising interest rates resulted in lower pension provisions, said Prabhudas Lilladher.
“We remain optimistic on Federal Bank as earnings are expected to see a about 20 per cent CAGR over FY22-24E while credit quality would remain resilient,” it added with a buy rating and target of Rs 135.
The ace investor Rakesh Jhujhunwala held 7,57,21,060 equity shares or a 3.7 per cent stake in the private lender as of March 31, 2022, which is worth more than Rs 770. His stake has been unchanged over the last three quarters.
However, the bank has not announced its shareholding for the quarter ended June 30, 2022. Listed companies are obliged to release the list of key shareholders on a quarterly basis as per the Sebi norms.
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