Federal Bank shares at Rs 190 or Rs 135: What brokerages say about RJ's banking bet?

Overseas brokerage firms are divided on Federal Bank, a Jhunjhunwala's owned stock, after the private lender shares its quarterly update for the March 2024 quarter. The Kochi-based lender said its gross advances rose 20 per cent to Rs 2,12,758 crore in the March 2024 quarter from Rs 1,77,377 crore in the year-ago period.

Total deposits reached Rs 2,52,583 crore, registering a growth of 18 per cent on a year-on-year (YoY) basis over Rs 2,13,386 crore as of March 31, 2023. "As per internal classification, retail credit book grew by 25 per cent and wholesale credit book grew by 15 per cent, while retail to wholesale ratio is at 56:44," Federal Bank said.

Brokerage firms tracking the counter are mixed on the lender but are awaiting the quarterly earnings for more clarity on the parameters like asset quality, net interest income (NIIs) and margins. Some see about 15 per cent upside potential in the stock, while others are expecting a 21 per cent slide in the counter.

Citi has a 'sell' rating on Federal Bank with a target price of Rs 135 apiece as it believes that earnings to be impacted by wage revision. However, the cost-to-income ratio may inch-up, it said. "Citi noted that advanced growth picked up and deposits growth were higher than expected. "Net interest margins (NIMs) trajectory will be key to watch for," Citi added expecatin marginal rise QoQ.

Shares of Federal Bank rose more than 1.35 per cent during the trading session on Thursday to Rs 156.75, against its close at Rs 154.65 in the previous trading session on Wednesday. The lender commanded a total market capitalization close to Rs 38,000 crore.

Morgan Stanely said that the deposit growth of Federal Bank was healthy led by strong term deposits growth. The foreign broker noted that loan growth and customer deposits continued to do well. However, CASA deposits growth remained subdued, said the brokerage, which has an 'equal-weight' rating on the stock with a target price of Rs 165 apiece.

Dalal Street's superstar investor Rekha Rakesh Jhujhunwala cumulatively held 7,27,13,440 equity shares, or 3.02 per cent, stake in Federal Bank, amounting to Rs 1,125 crore as of December 31, 2023. The lender is yet to announce its shareholding pattern for the quarter ended on March 31, 2024.

On the other hand Nomura remains positive on Federal Bank on the bank of strong loan and deposit growth. The global brokerage firm has maintain its buy rating on the stock with a target price of Rs 190 as the private lender remains its preferred midcap banking pick.

The brokerage said that it is awaiting further details of Q4 results, while it expects NIMs to be stable on a sequential basis. "Strong fee income growth to sustain and asset quality to remain benign," said Nomura.