YES Securities has given Buy recommendation for Federal Bank with a target price of Rs. 165 in its research report issued on Oct 14, 2022

YES Securities’ research report on Federal Bank

Even the conservative management found reason to enhance margin and RoA guidance: Full year NIM guidance stands revised upward to 330 bps. Apart from yield, the other lever for NIM expansion is lower interest reversals. For the quarter, NIM improved 8 bps QoQ to 3.30%. This was driven by a 36 bps improvement in yield on advances QoQ. 110-115 bps of the rate hikes have got passed on. Management revised guidance for full year FY23 upward to 1.2% with exit quarter guidance now being 1.25%.

Outlook

We maintain ‘Buy’ rating on FED with a revised price target of Rs 165: We had flagged FED as one of our top 3 bank picks in our Sector Initiation Report dated June 2021. We value the standalone bank at 1.3x FY24 P/BV for an FY23E/24E/25E RoE profile of 13.6/14.5%/15.5%. We assign a value of Rs 8.7 per share to the subsidiaries, on SOTP.

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