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Federal Bank shares near life-time high, but analysts see up to 17% further upside

Federal Bank shares near life-time high, but analysts see up to 17% further upside

Federal Bank reported strong numbers in Q2FY23 on all parameters and asset quality of the company improved throughout the quarter with a satisfactory improvement in NPAs, with a stable outlook over asset quality

Federal Bank hit a high of Rs 140.70 on Monday, merely shy off its record peak of Rs 142.25. However, the stock gave up some gains in the second half of the session Federal Bank hit a high of Rs 140.70 on Monday, merely shy off its record peak of Rs 142.25. However, the stock gave up some gains in the second half of the session

Federal Bank has emerged as one of the top fundamental picks for 2023. Analysts see up to 17 per cent upside in the few sessions, thanks to improved credit growth and asset quality.

The private lender strong numbers in the September quarter. Asset quality improved, with a fall in non-performing assets. The bank management expects improvement in net interest margin (NIM) with moderate slippages in the upcoming quarter, Q3FY23. According to them, return on asset (RoA) is ahead of their expectations and it may keep the cost of credit under control.

Shares of Federal Bank hit a high of Rs 140.70 on Monday, merely shy off its record peak of Rs 142.25. However, the stock gave up some gains in the second half of the session.

Federal Bank has one of the greatest retail and consistent deposit franchises among significant large private banks.

The bank's liability franchise is still strong, with CASA plus Retail TD at 92 per cent, and over the medium term, it plans to steadily raise CASA deposits, said brokerage Hem Securities. The bank has managed asset quality well throughout the epidemic, and the bank intends to aggressively extend its footprint through partnerships with fintech companies as well as physical expansion, it said with a buy rating and a target price of Rs 161. The Kerala-headquartered bank is among the biggest Indian private lenders.

"With pricing constraints easing out gradually and a noticeable improvement in loan off-take, the bank is seeing good chances in the corporate category," Hem Securities said. The need for banking and related services will rise as the working population grows and disposable income rises, said brokerage firms. Axis Securities said Federal Bank's credit growth witnessed continued growth momentum.

"The bank is also keenly focused on neo-banking tie-ups to reach the country’s under-banked population and expects these partnerships to contribute meaningfully to the overall business growth moving forward." The brokerage said Federal Bank IS among few mid-tier banks that have consistently worked towards strengthening their deposit base. The bank has a granular deposit franchise with a healthy CASA Ratio of 36.4 per cent and retail deposits forming 93 per cent of the total deposit base, it said while suggesting a ‘Buy’ rating on the stock with a target Rs 160. In addition to cooperative credit institutions, the Indian banking system includes 12 public sector banks, 22 private sector banks, 44 foreign banks, 43 regional rural banks, 1,484 urban cooperative banks, and 96,000 rural cooperative banks. According to the management of the bank, it is the strongest quarter till date with very good growth across all key parameters. Strong business momentum has aided meaningful gains in market share, said SMC Global. "Asset quality of the bank has been resilient and demonstrates the underwriting, monitoring and collection capabilities of the Bank. The bank is comfortably capitalised and liquidity is also supported by a healthy retail deposit base," it said.

All these are to benefit the bank to achieve higher credit growth and margin improvement going forward, added SMC with a buy rating and a target price of Rs 163 on the stock.

Published on: Jan 02, 2023, 2:57 PM IST
Posted by: Priya Raghuvanshi, Jan 02, 2023, 2:52 PM IST