Buy Federal Bank, target price Rs 126: HDFC Securities

HDFC Securities has buy call on Federal Bank with a target price of Rs 126. The current market price of Federal Bank Ltd. is Rs 90.8. Time period given by analyst is one year when Federal Bank Ltd. price can reach defined target.

Federal Bank Ltd., incorporated in the year 1931, is a banking company (having a market cap of Rs 18912.40 Crore).

Federal Bank Ltd. key Products/Revenue Segments include Interest & Discount on Advances & Bills, Income From Investment, Interest On Balances with RBI and Other Inter-Bank Funds and Interest for the year ending 31-Mar-2021.



Financials
For the quarter ended 31-03-2022, the company reported a Consolidated Total Income of Rs 4170.55 Crore, up 1.10 % from last quarter Total Income of Rs 4125.30 Crore and up 4.36 % from last year same quarter Total Income of Rs 3996.43 Crore. The bank reported net profit after tax of Rs 587.54 Crore in latest quarter.

Investment Rationale
Federal Bank’s (FB) Q4FY22 earnings missed estimates, largely on account of accelerated absorption of family pension expenses, but these were partly offset by multi-quarter low credit costs (20bps). Margin moderated on the back of income reversal from slippages in the agri portfolio. Overall asset quality continued to impress, with negative net slippages and a 20bps sequential decline in the restructured book (2.4%). The bank’s industry-leading FinTech ecosystem partnerships continue to drive new customer acquisitions and these are expected to contribute materially on both sides of the balance sheet, resulting in better business productivity. The brokerage tweaks FY23E/FY24E earnings marginally to factor in near-term margin outcomes and higher opex from continued investments; it maintains BUY, with a revised target price of INR126 (1.2x Mar-24 ABVPS).

Promoter/FII Holdings
Promoters held 0 per cent stake in the company as of 31-Mar-2022, while FIIs owned 26.01 per cent, DIIs 43.25 per cent.