Shares of Federal Bank surged more than 2% to ₹132 apiece on the BSE in Wednesday’s trading session, hovering near its record high level of ₹143 per share that it had hit in January this year. Brokerages are further bullish on the banking stock post the analyst day.
“We reiterate ‘BUY’ with a target price of ₹180 as we believe the bank is set to deliver higher RoA of 1.4% through FY25E versus an average RoA of 0.9% over the last five years. With a derisked book, fintech partnerships gaining traction and market share acquisition in loans, we expect Federal Bank to deliver a strong EPS CAGR of 28% over FY22–25E,” said Nuvama Research.
Given a strong outlook for loan growth and sustained improvement in RoA, analysts at Nuvama expect the stock to outperform the mid-cap BFSI space. Federal’s early-mover advantage in growing with the help of fintechs has led to material gains in liabilities and fee income. The bank has a surplus on priority loans, which is a positive.
“We remain positive on the stock, as FB demonstrates strong asset quality through the cycle and has created a pan-India franchise that would enable it to build a sustainable business model with healthy earnings profile. Our current estimates build in 1.2% RoA and +15% RoE over FY23-25E and we maintain our earnings estimate and TP of ₹170. Maintain BUY,” said analysts at Antique Stock Broking.
At the analyst day, Federal Bank reiterated focus on branch light, distribution heavy model in partnerships with Fintechs/BCs, increasing share of retail loans, strengthening liability side with increasing share in its core NRI deposits and and maintaining asset quality while improving NIM/fee income.
“These efforts are visible in superior asset quality performance over the last 3 years, increasing market share in CASA/NRI deposits and NEFT/RTGS/debit card transactions. We expect improving income profile – NIM expansion, improving fee income streams – and moderate credit cost to result in sustainable RoA of 1.2-1.3% and sustainable RoE of 15% from FY24. Maintain Buy with TP of ₹180,” said brokerage Ambit.
As per the BSE shareholding pattern, late investor Rakesh Jhunjhunwala holds 1.17% stake in the bank whereas his wife Rekha Jhunjhunwala holds 2.31% stake as of December 2022 quarter.