Federal Bank Q3 profit jumps 54%; most analysts retain ‘buy’ tag on the stock

Federal Bank Q3 Results: Other income rose 10.3 percent to Rs 534 crore from Rs 484.19 crore in the same period of the previous year.

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Federal Bank shares will remain in focus on January 17, a day after the company reported its December quarter earnings.

Federal Bank on January 16 reported a 54 percent jump in its December quarter net profit at Rs 803.61 crore on higher net interest income and lower provisions.

The company had reported a net profit of Rs 521.73 crore in the year-ago quarter.

Provisions and contingencies declined 7.1 percent to Rs 198.69 crore from Rs 213.98 crore a year ago. Sequentially, too, they were down from Rs 267.86 crore in the September quarter.

Net interest income (NII), or the income a bank earns by giving loans, increased 27.1 percent to Rs 1956.53 crore from Rs 1,538.90 crore in the year-ago quarter.

Other income rose 10.3 percent to Rs 534 crore from Rs 484.19 crore in the same period of the previous year.

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Here is what brokerages have to say about the stock and the company after the December quarter earnings:

Citi

The research house has kept the ‘buy’ rating on the stock and raised the target price to Rs 165 per share.

It was a strong and in-line Q3, while NIM headwinds likely to materialise from FY24. The 40 percent on-year jump in PPoP was led by solid NII.

Rate hikes continued to support faster asset repricing, while pressure on incremental liability mobilisation are medium-term NIM headwinds, however, NIM is unlikely to compress till rates increase, reported CNBC-TV18.

Nirmal Bang

The brokerage house maintained the ‘buy’ rating on the stock with a target price of Rs 166.

The bank posted a strong Q3 FY23 performance, driven by margin expansion and lower provisions. Asset quality improved on a sequential basis while slippages inched up marginally.

The management upgraded its full-year RoA forecast to 1.25 percent and endeavours to increase it by 10bps in FY24.

Morgan Stanley

The brokerage firm has kept the ‘overweight’ rating on the stocks and raised the target price to Rs 175 per share.

Core PPoP growth of 52 percent on-year, was 8 percent above the estimates and NII growth was a big surprise led by higher margins.

The management raised the NIM/RoA guidance for FY24, while broking firm raised EPS estimates by 5-12 percent in FY23/24, reported CNBC-TV18.

Motilal Oswal Financial Services

The broking house has maintained the ‘buy’ rating on the stock with a target at Rs 170 per share.

The stock is a preferred pick among midcap banks. The robust NII and controlled provisions drive the earnings.

The broking house raises estimates by 5-7 percent as build in higher margin and provisions and estimate it to deliver a RoA/RoE of 1.3 percent/15.2 percent in FY25, reported CNBC-TV18.

Prabhudas Lilladher

Reiterates ‘buy’ and raises the target price to Rs 175 from Rs 165.

The bank again surpassed its previous quarter best, with core earnings at Rs 7.75 bn, beating broking house estimates by 16 percent led by NIM beat which came in at 3.89 percent (PLe 3.66 percent) as funding cost was lower at 4.9 percent (PLe 5.1 percent)

Bank further raised steady state NIM guidance from 3.30 percent to 3.35-3.40 percent. Fee income in 9MFY23 has risen by 43 percent to Rs 12.9 billion and the bank expects current run-rate to continue.

The brokerage house has increased the FY23 PAT by 6 percent and FY24/25E PAT by 2 percent each.

Sharekhan

Maintains ‘buy’ rating on Federal Bank with a revised price target of Rs 170.

The broking firm believes the bank is well poised to sustain RoA of 1.2-1.3 percent over the medium term. It believes the bank has fewer levers to surprise positively from here on except on the operating leverage. However, a reversal in return ratios is unlikely and asset-quality outlook is stable for the sector.

Sharekhan believes now consistent steady performance could drive re-rating in the stock.

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