Federal Bank: Should you buy Jhunjhunwala's midcap banking bet?
Under the new CEO, Federal Bank is addressing inefficiencies, targeting RoA of 1.4 per cent and RoE of 15.6 per cent and a cost-to-income ratio of 48.8 per cent by FY28, stock analysts noted.
- Jun 25, 2025,
- Updated Jun 25, 2025 3:46 PM IST
Shares of Federal Bank are up 20 per cent in the past one year compared with a 6 per cent rise in the BSE Bankex during the same period. While the Rekha Jhunjhunwala’s portfolio stock remains a consensus 'Buy' as suggested by 34 analyst recommendations, recent reports on the stock suggest analysts are turning mixed on the stock's prospects.
Under the new CEO, KVS Manian, the private lender is addressing inefficiencies, targeting return on asset (RoA) of 1.4 per cent and return on equity (RoE) of 15.6 per cent and a cost-to-income ratio of 48.8 per cent by FY28, stock analysts noted.
They said Federal Bank's transformative initiatives are steps in the right direction, but execution is key. Following the recent 20 per cent jump in the past one year, a few targets suggest limited upside on the counter going ahead.
Rekha Jhunjhunwala held 3,60,30,060 shares or 1.48 per cent stake in the private lender as of March 31.
Federal Bank remains one of MOFSL's preferred BUY-rated ideas among mid-size private banks with a target price of Rs 250, the domestic brokerage said on Wednesday. At 3 pm, the scrip was trading 0.72 per cent higher at Rs 210.70.
MOFSL said Federal Bank is exhibiting strong business growth while rebalancing its portfolio toward higher-yield segments such as LAP, used CVs, gold loans, and credit cards to enhance profitability. It targets a 17 per cent loan CAGR over FY25–28 with a focus on maintaining robust asset quality, the brokerage said.
Given the pedigree of its top management, the bank will be able to navigate its journey well, said InCred Equities earlier this month.
The stock valuation is not cheap at 1.1 times FY27 book value, as the repo rate cut cycle is yet to fully play out and elevated cost ratios will also impact profitability in the near- to-medium-term, this brokerage said.
"We value the core banking business at 1.2x FY27F BV and assign subsidiaries’ value (at Rs 15 per share) to arrive at target price of Rs 220," it said on June 6.
Nomura India also suggested a target price of Rs 220 on the Federal Bank stock on June 9, valuing the core-bank at 1.3 times March 2027F book value per share and subsidiary at Rs 4 per share. Softness in growth and net income margin (NIM), pick-up in credit costs.
The target suggests 5 per cent potential upside for the stock ahead.
PhillipCapital noted that declining interest rates are not favourable for net interest margins (and vice-versa), suggests empirical evidence and banks’ pricing mechanisms for assets and liabilities (ceteris paribus). Over FY25-27, it sees moderate NIM compression for Federal Bank at 6 basis points.
Shares of Federal Bank are up 20 per cent in the past one year compared with a 6 per cent rise in the BSE Bankex during the same period. While the Rekha Jhunjhunwala’s portfolio stock remains a consensus 'Buy' as suggested by 34 analyst recommendations, recent reports on the stock suggest analysts are turning mixed on the stock's prospects.
Under the new CEO, KVS Manian, the private lender is addressing inefficiencies, targeting return on asset (RoA) of 1.4 per cent and return on equity (RoE) of 15.6 per cent and a cost-to-income ratio of 48.8 per cent by FY28, stock analysts noted.
They said Federal Bank's transformative initiatives are steps in the right direction, but execution is key. Following the recent 20 per cent jump in the past one year, a few targets suggest limited upside on the counter going ahead.
Rekha Jhunjhunwala held 3,60,30,060 shares or 1.48 per cent stake in the private lender as of March 31.
Federal Bank remains one of MOFSL's preferred BUY-rated ideas among mid-size private banks with a target price of Rs 250, the domestic brokerage said on Wednesday. At 3 pm, the scrip was trading 0.72 per cent higher at Rs 210.70.
MOFSL said Federal Bank is exhibiting strong business growth while rebalancing its portfolio toward higher-yield segments such as LAP, used CVs, gold loans, and credit cards to enhance profitability. It targets a 17 per cent loan CAGR over FY25–28 with a focus on maintaining robust asset quality, the brokerage said.
Given the pedigree of its top management, the bank will be able to navigate its journey well, said InCred Equities earlier this month.
The stock valuation is not cheap at 1.1 times FY27 book value, as the repo rate cut cycle is yet to fully play out and elevated cost ratios will also impact profitability in the near- to-medium-term, this brokerage said.
"We value the core banking business at 1.2x FY27F BV and assign subsidiaries’ value (at Rs 15 per share) to arrive at target price of Rs 220," it said on June 6.
Nomura India also suggested a target price of Rs 220 on the Federal Bank stock on June 9, valuing the core-bank at 1.3 times March 2027F book value per share and subsidiary at Rs 4 per share. Softness in growth and net income margin (NIM), pick-up in credit costs.
The target suggests 5 per cent potential upside for the stock ahead.
PhillipCapital noted that declining interest rates are not favourable for net interest margins (and vice-versa), suggests empirical evidence and banks’ pricing mechanisms for assets and liabilities (ceteris paribus). Over FY25-27, it sees moderate NIM compression for Federal Bank at 6 basis points.