Buy Federal Bank Ltd For Target Rs.120 - ICICI Direct
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Earnings in line, business growth to gain momentum
About the stock: Federal Bank is an old private sector bank based out of Kerala with around 1272 branches and 1874 ATM across various states.
* Strong liability franchisee with over 91% of total deposits being retail
* Balanced loan mix with retail: corporate mix of 54:46
Q2FY22 Results: Overall outlook improving.
* Loans up 9.4% YoY at | 1.34 lakh crore, deposits up 9.7% YoY
* NII up 7.2% YoY and 4.3% QoQ, NIMs rise 5 bps at 3.2% QoQ
* GNPA down 26 bps QoQ to 3.24%, restructured book at ~2.6%
What should investors do? Federal Bank’s share price has increased by ~90% in the past one year from around | 55 to | 104 per share.
* Factoring in a diversified asset mix and improving digital footprint, we retain our BUY rating on the stock
Target Price and Valuation: We value Federal Bank at ~1.4x FY23E ABV to arrive at a revised target price of | 120 from | 100 per share earlier.
Key triggers for future price performance:
* Asset quality performance enthuses with positive outlook
* Gradual pick up in advances & diversified asset mix to aid earnings
* Focus on high yielding book (MFI & credit cards) and strong liability franchisee to support margins
* Benefit of digital partnership & business growth to be watched
Alternate Stock Idea: Besides Federal, in our coverage we also like HDFC Bank.
* HDFC Bank is a leading private sector bank in India with consistent performance and superior operating metrics across cycles
* BUY with a target price of | 2000
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