Federal Bank: A Sound Investment Choice with a Target of Rs 170
In the ever-evolving landscape of banking and finance, identifying promising investment opportunities is an art. One such opportunity that has garnered the attention of experts is Federal Bank. In this article, we will delve into why Sharekhan recommends a ‘BUY’ rating on Federal Bank, with a target price of Rs 170.
Federal Bank’s Stellar Performance
Federal Bank has been making waves in the banking sector, and there are solid reasons behind its bullish outlook:
Robust Loan Growth
Federal Bank reported an impressive 20% year-on-year (y-o-y) and 5% quarter-on-quarter (q-o-q) loan growth in Q2FY24. This growth has been widespread, encompassing both the retail and wholesale segments, with retail loans growing by 22% y-o-y and wholesale loans by 17% y-o-y.
Strong Deposit Growth
The bank’s deposits also witnessed substantial growth, with a 23% year-on-year (YoY) and 5% q-o-q increase. This growth was primarily driven by robust expansion in retail term deposits and wholesale deposits.
CASA Dynamics
While the growth in Current Account Savings Account (CASA) remained moderate, showing a 5% YoY and 3% q-o-q increase, it’s important to note the CASA ratio. Despite the modest growth, CASA still contributes significantly to Federal Bank’s deposits, with a ratio of 31.17% compared to 36.41% year-on-year.
NIM Prospects
Net Interest Margins (NIMs) are expected to have bottomed out in H1FY24 and are anticipated to gradually rebound in H2FY2024. This is a positive sign for the bank’s profitability.
Attractive Valuations
As of the current market price (CMP), Federal Bank trades at 1.2 times its FY2024E book value estimates (BV) and 1.1 times FY2025E BV estimates. These valuations are considered reasonable, making Federal Bank an attractive choice.
The Outlook
Looking ahead, the prospects for Federal Bank appear promising. Sharekhan reiterates a ‘BUY’ rating on Federal Bank with an unchanged price target of Rs 170. The bank is expected to maintain a Return on Assets (RoA) of over ~1.2%, driven by robust loan growth, healthy fee income, and favorable credit cost dynamics, despite near-term NIM pressure. This is projected to translate into a normalized Return on Equity (RoE) of ~15%.
Conclusion
In conclusion, Federal Bank emerges as a sound investment choice in the mid-tier private banking segment. With its impressive loan growth, strong deposit base, and favorable NIM outlook, it aligns well with investors’ aspirations. Sharekhan’s ‘BUY’ rating with a target price of Rs 170 reaffirms the bank’s potential. For those seeking a sturdy addition to their investment portfolio, Federal Bank could be the prudent choice that leads to financial growth. Don’t miss out on the opportunities that Federal Bank has to offer.
Disclaimer: Any views and investment tips expressed by any author, investment experts or agencies here on MSTimes are their own and not those of mine or website. I advises users to consult/check with certified Financial experts / advisors before taking any investment decisions.
