Axis Securities Recommends a BUY on Federal Bank with a Target Price of ₹180

Axis Securities has recently updated its analysis on Federal Bank, presenting a strong case for investment with a 'BUY' recommendation. The firm has set a target price of ₹180 for the stock, which indicates a significant upside potential from the current market price (CMP) of ₹145.90.

Federal Bank's Financial Performance

The bank has showcased an impressive year-on-year credit growth of 18%, with a quarterly growth of 3%. A higher-yielding portfolio, which now represents over a quarter of the total, has seen an increase from last year. Moreover, the bank's deposit costs have only slightly increased, while yields have seen a negligible improvement.

Meanwhile, net interest margins (NIMs) saw a modest decline. However, the non-interest income has witnessed a remarkable year-on-year uptick of 62%, substantially bolstered by a one-off gain from selling a stake in FedFina. The Cost-to-Income (C-I) Ratio also improved marginally.

The bank's pre-provision operating profit (PPOP) showed a positive trajectory with yearly and quarterly growth. On the credit risk front, the bank improved, recording a lower credit cost compared to last year and the previous quarter. A noteworthy increase in earnings was also observed both annually and quarterly. Although there was a slight rise in gross non-performing assets (GNPAs), the restructured book has shown a decreasing trend.

Outlook and Valuation

With the continued demand for credit, Federal Bank is expected to maintain its growth cycle. It aims to take a careful approach in client acquisition, particularly in high-yield segments. Taking into account certain factors like the delay in margin recovery and an increase in operational expenses, Axis Securities slightly adjusted its earnings forecasts for the future.

The bank's stock is trading at a valuation that points to its attractiveness. With the revised earnings estimates and lower credit costs anticipated, Axis Securities has arrived at an attractive target price, suggesting that the stock could witness a 20% climb. Given these projections, they reaffirm their bullish stance on Federal Bank's shares.

Banking, Investment, Growth