Federal Bank shares: Q4 results better than feared; hunt for next CEO intensifies; here are target prices

Federal Bank posted a flattish March quarter profit on wage hike provisions but analysts said the overall numbers were better than expectations. An unchanged net interest margin (NIM) and negligible credit costs were key positive outcomes, they said. Going ahead, analysts believe all eyes would on the replacement of the current MD & CEO Shyam Srinivasan, whose term is set to end on September 22, 2024.

Motilal Oswal Securities said Federal Bank's Q4 numbers were broadly in-line with its expectations, with robust business growth and improved asset quality. The lower other income and higher opex due to residual wage provisions led to a miss in operating profits, it said.

"NIMs expanded marginally to 3.21 per cent, and the management expects margins to improve slightly over FY25 as improvements in lending yields offset the rise in funding costs. We broadly maintain our estimates as improvements in operating leverage, along with steady business growth and margins, will keep earnings robust. We reiterate our BUY rating on the stock with a target of Rs 195," it said.

Kotak Institutional Equities said a lower-than-forecasted NIM contraction, better performance on fee income growth and a strong asset quality print led to negligible credit costs dominated the beat, even when operating costs were impacted by the wage settlement.

"This trend, through which the earnings beat has come, is visible in earlier years as well," Kotak Institutional Equities siad.

The brokerage is building in a more conservative outlook on NIM, slower fee income growth and a marginally higher credit cost. The conservative outlook, it said, is an outcome of the nature of assets being built with a steadily increasing share of higher-yielding loans.

"It is quite likely that another year of benign slippages would result in the bank achieving its guidance that is ahead of our forecasts," Kotak said whole upping its target to Rs 190 from Rs 185 earlier.

Federal Bank's next MD & CEO

The Federal Bank board has set up a search committee for evaluating internal or external candidates for the position and the names will be sent to the RBI in the next 2-3 weeks. "Clarity will emerge on the name of the candidate in 3-4 months," Nirmal Bang said.

"We continue to maintain ‘BUY’ rating on Federal Bank with a revised target price (TP) of Rs 204 (valued at 1.35x March 2026E ABV plus subsidiary value per share of Rs 11.40) vs earlier target of Rs 178," Nirmal Bang said.

There have been reports that Krishnan Venkat Subramanian (KVS) Manian, who  resigned as Kotak Mahindra Bank's joint MD this week, would join Federal Bank.

Nuvama said: "If an internal candidate is approved by RBI (either Harsh or Shalini) it is good enough. There is no certainty on external name but actual CEO shall be known only when RBI approves. Till then the market and media shall believe Manian (external candidate) could most likely be CEO that is also good if it happens."

This brokerage upped its target price on Federal Bank to Rs 195 from Rs 185 earlier.

Antique Stock Broking maintained is earnings estimates and expects RoA of 1.2 per cent and RoE of 13 per cent over FY25-26. It marginally tweaked its target price  to Rs 195 and maintained 'Buy' on the Federal Bank stock.