Federal Bank shares drop 6% after Q3 profit decline; JPMorgan sticks to Buy, UBS cuts target price

Shares of Federal Bank fell over 6% to Rs 178.1 in Tuesday's intraday trade on the BSE after the private sector lender reported a 5% year-on-year decline in its net profit for the third quarter ending December 30, 2024. The bank posted a net profit of Rs 955 crore, down from Rs 1,007 crore in the same period last year, despite recording its highest-ever pre-provision operating profit.

The bank has made accelerated provisions of Rs 292 crore during the quarter. Total provisions also stood at Rs 292 crore after adjustment of regular provisions and provisions write-back as against Rs 91 crore made in the year ago period. Its provision coverage ratio rose to 74.21% from 71.08%.

"In alignment with our commitment to building a robust foundation, we have undertaken accelerated provisioning for certain riskier asset classes this quarter," managing director KVS Manian said.


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The Kochi-headquartered lender's asset quality however improved with gross non-performing assets ratio falling to 1.95% at the end of December 2024 from 2.29% a year back. Net NPA ratio stood at 0.49% against 0.64%.

Operating profit was at Rs 1570 crore against Rs 1437 crore, buoyed by 14.5% expansion in net interest income at Rs 2,431 crore. Fee income also rose 21% year-on-year.

Its total net advances grew 16% year-on-year to Rs 2.30 lakh crore while total deposits increased by 11% to Rs 2.66 lakh crore at the end of December.

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Analyst Views:

JPMorgan

JPMorgan maintained a 'Buy' rating on Federal Bank with a target price of Rs 215. The bank's operating performance exceeded expectations, but higher provisions led to a miss on overall results. JPMorgan noted that FY25 headline estimates could be revised downward, while FY26 guidance will largely depend on the direction set by the new CEO.

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UBS

UBS maintained a 'Buy' rating on Federal Bank, lowering its target price to Rs 235 from Rs 250. The bank's profit after tax (PAT) missed expectations due to higher provisions, while loan and deposit growth remained subdued. UBS also anticipates a downward revision in management's previous guidance for FY25.

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