Buy Federal Bank, target price Rs 115: Anand Rathi

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
Lower margins, less Treasury income and higher opex led to a ~500bp weakened C/I ratio; moderating provisions, however, counterbalanced the weak operating performance keeping RoA at 1% for Federal bank. Asset quality improved as slippages were less than anticipated. With the lower formation of stress than earlier envisaged, recoveries in earnings would be better. Given the bank’s strong liability franchise and capitalisation, it is set to gain market share in the near term. It maintains positive view on it with a Rs.115 target, valuing it at 0.9x P/ABV on its FY24e book

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.