Buy Federal Bank; target of Rs 170: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Federal Bank has recommended buy rating on the stock with a target price of Rs 170 in its research report dated May 06, 2023.

Broker Research

May 08, 2023 / 14:20 IST

Buy

Prabhudas Lilladher's research report on Federal Bank

FB saw a weak quarter with core PPoP missing PLe by 13% led by lower NII, as NIM at 3.7% missed PLe by 20bps. While bank attributed lower margins to deposit cost rise, weaker NIM (calc.) was led by 1) high share (72%) of low NIM segments in quarterly credit flow and 2) decline in CASA ratio by 156bps QoQ to 32.7%. We lower NIM for FY24/25E by 5bps to 3.3%. Slower growth in low yielding segments (57% share) is crucial for better NIM. Key positives were, (1) continuation of growth momentum in high yielding pool; its share in total loans inched up to 20.7% (20.5% in Q3) and (2) fee income growth of 41% YoY in FY23 to Rs18bn. Fees to assets enhanced over FY22-23 from 61bps to 75bps. We raise fees’ for FY24/25E by average ~7%.

Outlook

Driven largely by lower NII, we cut FY24/25E PAT by average 3%. Accordingly, we trim our TP from Rs175 to Rs170, maintaining multiple at 1.5x on FY25E ABV. Retain BUY.

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