Federal Bank shares approach 52-week high ahead of Q3 earnings; here's what to expect

Shares of Federal Bank were trading in the green in early morning deals ahead of private lender's Q3 earnings set to be announced today.  Federal Bank stock touched an intraday high of Rs 141.20 rising 1.98% on BSE. Market cap of the bank rose to Rs 29,888 crore on BSE. The stock is trading 1.35% away from the 52-week high of Rs 142.25 hit on December 12, 2022.  The stock has been gaining for the last three sessions. Federal Bank shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages. The banking stock has risen 42.73% in one year and gained 1.73% since the beginning of this year. Total 5.25 lakh shares changed hands amounting to turnover of Rs 7.36 crore on BSE.

Kotak Instittutional Equities has placed a buy call on the stock ahead of Q3 earnings. It sees a 10% upside in the stock from January 5 level. The brokerage expects the lender report a 34.9 per cent rise in Q3 profit at Rs 703.7 crore against a profit of Rs 521.7 crore in the corresponding quarter of the previous fiscal. On a quarter-on-quarter basis, profit is expected to remain unchanged. Net interest income is seen rising 20.2% to Rs 1,849.6 crore in the December 2022 quarter  against Rs 1538.9 crore in the corresponding quarter of 2021.

"We expect slippages at 1.3% of loans (Rs 500 crore) with no major large-ticket loans. Gross NPL ratio is expected to decline qoq, aided by better recovery trends. The key discussion points would be (1) liability side  challenges, (2) near-term outlook on growth and (3) near-term normalization of RoA and RoEs," Kotak Equities said.

Morgan Stanley said, "We expect margin to improve 10 bps QoQ to 3.41 per cent. This will be driven by repricing of loans and mix shifts towards higher-yielding assets, which will be partly offset by rising funding costs. NII growth should improve to 22 per cent YoY against 19 per cent YoY last quarter. Fee income should remain healthy at Rs 470 crore (up 30 per cent YoY)against Rs 450 crore last quarter," it said.
 
Morgan Stanley expects costs to grow 12 per cent YoY against 9 per cent YoY last quarter. Consequently, it expects core PPoP growth of 41 per cent YoY, steady against last quarter. Morgan Stanley said it expects normalised asset quality trends with slippages of Rs 400 crore (1.1 per cent of trailing loans, annualised), against Rs 390 crore last quarter.

In the September quarter of 2022, the reported a 52.89 per cent rise in its standalone net profit to Rs 703.71 crore, aided by fall in provisions for bad loans. The south-based lender had posted a net profit of Rs 460.26 crore in the year-ago period. Total income in Q2 rose to Rs 4,630.30 crore from Rs 3,870.90 crore in the corresponding period of 2021-22.

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