Sharekhan has given Buy recommendation for Federal Bank with a target price of Rs. 110 in its research report issued on May 06, 2022
Sharekhan’s research report on Federal Bank
Federal Bank reported weak operating performance; PAT at Rs. 541 crore was in line with consensus and our estimates mainly due to lower total credit cost (0.2% of average advances) for Q4FY2022. Net interest income grew mutedly by 7% y-o-y and declined by 1% q-o-q, trailing advances growth of 10% y-o-y, mainly due to reduction in NIM (by 11 bps q-o-q) reported at 3.16%. NIMs reduced due to fall in advances yield by 12 bps q-o-q. Core operating profit grew by only 1% y-o-y and declined by 7% q-o-q due to higher opex (3.3% of average advances) and lower NII. Asset quality improved with GNPA/NNPA declining by 26bps/9bps q-o-q to 2.80%/3.06% due to higher write-offs.
The stock currently trades at 1.1x and 1.0x its FY2023E and FY2024E ABV, which we believe is reasonable, given the return profile. We maintain Buy with a revised PT of Rs. 110.