Federal Bank Q2 Results Review: Analysts Expect NIMs To Continue In Narrow Range
The lender's Q2 net profit rose 35.5% year-on-year to Rs 954 crore, beating Bloomberg estimate of Rs 862.8 crore.
Federal Bank Ltd.'s second-quarter profit beat analysts' estimates, largely driven by lower provisions, but analysts expect the net interest margin to remain in a narrow range.
The private lender's net profit rose 35.5% year-on-year to Rs 954 crore in the September quarter, according to an exchange filing on Monday. Analysts polled by Bloomberg estimated a net profit of Rs 862.8 crore for the July–September quarter.
Net interest income, or core income, rose 17% to Rs 2,056 crore from last year.
The bank's asset quality position improved. The gross non-performing asset ratio fell sequentially to 2.26% as of Sept. 30. Even the net NPA ratio improved by 5 basis points to 0.64% quarter-on-quarter. Provisions fell sharply by 83.5% to Rs 44 crore from a year ago.
Shares of Federal Bank were trading 0.37% higher at Rs 149.10 apeice, compared with a 0.51% rise in the benchmark Nifty 50.
Here is what analysts had to say about Federal Bank Q2 FY24 results:
Motilal Oswal Financial Services Ltd.
Better-than-estimated profitability at Rs 950 crore, driven by contained credit costs and healthy 'other income'.
Gross advance growth stayed healthy at 20% YoY and 5% QoQ, led by healthy growth in retail and commercial banking.
Lower slippages of Rs 370 crore, along with healthy upgrades, led to a decline in the gross non-performing asset ratio and net NPA ratio by 11 bps and 10 bps, respectively.
Maintains 'buy' with a target price of Rs 170, implying a potential upside of 15%.
Haitong Securities Co.
Healthy deposit growth at 23% YoY and 5% QoQ is mainly led by continued strong growth in term deposits.
Expect the bank to deliver a ROA of 1.2% in FY24–26E.
The 14-bps rise in yields was partially led by a rise in high-yielding loans and some pass-through of the rate.
Slippages were lower across segments, with retail at Rs 201 crore, agriculture at Rs 54 crore, SME at Rs 110 crore, and the corporate segment at nil in consecutive quarters.
Downside risks may include NIM compression, slower loan growth, and higher than expected stress.
Maintains 'outperform' with a revised target price of Rs 172.
Antique Stock Broking Ltd.
Opex rose significantly with a 26% YoY and 8% QoQ rise, mainly driven by volume-related business expenses, including marketing expenses.
The bank has guided for 18–20% loan growth in FY24.
NIM performance continues to be weaker than expected, but as deposit repricing is largely behind, the bank would be able to maintain NIM in a narrow range.
Expects a return on assets of 1.2% and return on equity of +13% over FY24-26.
Maintains 'buy' with a target price of Rs 170, implying a potential upside of 6%.
Ashika Institutional Equity Research
NII grew by 16.7% year-on-year, supported by a healthy 19.6% year-on-year rise in loan growth and a marginal improvement in NIM.
Stable return on assets at 1.36%, even after successful capital raising during Q2.
Expects improvement in asset quality to reduce credit cost for FY24 to 30 bps, from 45 bps.
Expects the bank to sustain 'above-industry-average' credit growth and manage liability effectively in the coming quarters.
Maintains 'buy' with a revised target price of Rs 180.
