Sharekhan has given Buy recommendation for Federal Bank with a target price of Rs. 155 in its research report issued on Oct 14, 2022

Sharekhan’s research report on Federal Bank

Q2FY23 performance was strong with Federal Bank reporting a PAT of Rs. 704 crore (up 53% y-o-y/ 17% q-o-q), which was above consensus and our estimates (+11) driven by healthy loan growth (20% y-o-y / 6% q-o-q), margin expansion (10 bps y-o-y/ 8 bps q-o-q) and higher core fee income growth (45% y-o-y/ 22% q-o-q). Operating profits grew robustly by 40.2%% y-o-y /24.5% q-o-q aided by strong net interest income (NII) growth (19% y-o-y/ 10% q-o-q) and higher core fee income despite higher opex (2% of Avg. assets versus 1.9% in last quarter). Slippages stood at Rs.390 crore down 15.8% qoq, led by 40% QoQ reduction in retail segment. Asset quality sharply improved with GNPAs/NNPAs ratio declining by 23 bps/16 bps q-o-q to 2.46%/0.78%. PCR stood at ~68.7% vs 65.8% QoQ while restructured book remained flat QoQ at Rs. 3,892 crore (2.4% of loans).

Outlook

At CMP, the stock trades at 1.3x and 1.1x its FY2023E and FY2024E BV, which we believe is reasonable, given the improved return ratio outlook. We maintain Buy with a revised PT of Rs. 155.

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