Federal Bank's Target Price Raised By Brokerages After Strong Q3 Results

The Federal Bank Ltd.'s target price has been raised by brokerages after it reported a 54% year-on-year rise in profit for the December quarter, aided by higher net interest income and improved asset quality.   

While Yes Securities, Motilal Oswal, and HDFC Securities maintain a 'buy' rating, Dolat Capital reiterates 'accumulate' on the stock.

Out of the 37 analysts tracking the company, 34 maintain a 'buy' rating and three recommend 'hold', according to Bloomberg data.

Shares of Federal Bank Ltd. rose 0.50% in trade on Tuesday. Total traded volume stood at 2.5 times its 30-day average. The 12-month consensus price target implies an upside of 17%.

• Net Interest Income up 27.14% at Rs 1,957 crore.

• Net Profit rose 54% to Rs 804 crore.

• Gross NPA at 2.43% in Q3FY23 vs 2.46% in Q2FY23.

• Net NPA at 0.73% in Q3FY23 vs 0.78% in Q2FY23.

Here's what brokerages had to say about the earnings:

• Maintains a 'buy' rating with a price target of Rs 185, implying a potential return of 32%.

• Management enhanced the guidance for return on assets for FY23 to 1.25% and predicted it to be 10 basis points higher for FY24. They also said the rise would not be dominated by any one single factor.

• Management guided for its loan growth to be in the high teens for FY24 stating that gold loans could grow at the pace of 25%.

• Bank has added more than 60 branches so far this financial year and should add about 75 in total for the year.

• Reiterates 'buy' rating with a revised target price of Rs 170.

• Bank is still a popular choice among mid-sized banks, with an estimated return on assets and return on equity of 1.3% and 15.2% in FY25, respectively.

• Deposit growth was healthy, while the current account savings ratio moderated to 34.2%.

• Asset quality was driven by healthy recovery and upgrades.

• Brokerage raises earnings estimates for FY23 and FY24 by 7% and 5%, respectively, due to higher NII and lower provisions. 

• Maintains an 'accumulate' rating with an expectation of a 10–20% return over a 12-month period.

• Increased traction in the newly launched, higher-yielding loan segments of the company, including commercial vehicles, microfinance, and credit cards, will be NIM accretive, but their share remains marginal over the medium term.

• Expect 5 basis points of moderation in return on assets from 1.2% in FY23 to 1.15% in FY24, versus management guidance of a 10 bps expansion in FY24.

• Brokerage flags weaker than anticipated macroeconomic trends and its impact on growth and asset quality as a risk.

• Reiterates a 'buy' rating with a target price of Rs 175.

• Expects FY23 and FY24 earnings estimates to factor in lagged deposit repricing, offset by marginally lower provisions.

• New loan segments, organically and by way of FinTech partnerships, are likely to begin accounting for a meaningful mix of the loan book by FY25.

• Remain constructive on the bank's ability to dial up and monetise partnerships in newer loan segments to build scalable profit pools.