According to a recent report by Axis Securities, Federal Bank is on track to improve its ROE profile through higher-yielding Retail/CV/Credit cards in its portfolio mix and the asset quality is likely to stay stable driving gradual growth in the earnings.
The brokerage firm has a 'BUY' recommendation with a target price of Rs 115 (1.1x FY24E ABV), implying an upside of over 25 per cent from the current market price.
The stock closed 3.42 per cent higher at Rs 93.80 against the previous close of Rs 90.70. The market cap of the bank rose to Rs 19,716.75 crore.
Axis Securities noted that the bank has been taking a cautious approach in building the loan mix toward high-rated corporates and retail loans. The bank’s liability franchise remains strong with CASA plus Retail TD of 92 per cent and the bank looking to improve its CASA deposits gradually over the medium term.
It added that Federal Bank has managed asset quality well despite the pandemic and the restructured pool behaving well with collections remaining healthy, which is reassuring.
"Key positives are improving business mix, adequate CRAR, strong liability franchise and incremental lending to better-rated borrowers. Focus on high-margin businesses such as the MFI, CV portfolio, and Credit Cards will gradually aid in margin improvement," the brokerage firm said.
Private sector lender Federal Bank reported a 13.2 per cent rise in its standalone net profit to Rs 541 crore in the March 2022 quarter. The bank had posted a net profit of Rs 478 crore in the same quarter previous fiscal.
The total income during the January-March quarter of 2021-22 increased to Rs 3,948.24 crore against Rs 3,843.87 crore in the same period of the preceding fiscal, Federal Bank said in a regulatory filing.
On the front of asset quality, the gross non-performing assets (NPAs) improved to 2.80 per cent of the gross advances as of March 31, 2022, from 3.41 per cent a year ago.
Likewise, the net NPAs too declined to 0.96 per cent (Rs 1,392.62 crore) from 1.19 per cent (Rs 1,569.28 crore).
As per the shareholding pattern for Q4FY22, ace investor Rakesh Jhunjhunwala along with his wife Rekha Jhunjhunwala held 3.65 per cent stake in Federal Bank.
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