Emkay Global Financial has given Buy recommendation for Federal Bank with a target price of Rs. 110 in its research report issued on Oct 01, 2021
Emkay Global Financial’s report on Federal Bank
Federal Bank is transforming itself into a next-gen private bank via its neo-banking tie-ups across assets, liabilities, and payments businesses. This should not only help the bank thrive in the new era of banking, but also reduce the incremental cost of business and garner better fees/revenues in the long run. The bank’s retail portfolio has traditionally been dominated by secured mortgages and gold loans. However, it has now diversified into higher-margin CV, MFI, PL and Card businesses, which should drive up NIMs and thus RoA>1% (otherwise been a key irritant) in the long run. In our view, the three-year extension of the MD & CEO term provides management stability (missing among peers) and strategic continuity. The bank’s NBFC unit Fedfina has built a healthy loan book (>Rs47bn) and could potentially see value unwinding as it gains scale.
Federal Bank remains our preferred pick in the small/mid-cap space, apart from Equitas, given its better liability/asset quality profile, management stability, digital adoption and expected improvement in return ratios. Retain Buy with a TP of Rs110 (1x Sep’23E ABV).