Federal Bank rallies over 7% on strong Q2 performance; brokerages upbeat

Federal Bank shares in early trade on Tuesday (October 29) zoomed over 7 per cent to the day's high price of Rs 198.4 after the private sector lender reported its Q2 results on the previous day. At the last count, shares of the private lender were up 6.79 per cent or 12.55 points at Rs 197.25 per share.

For the September quarter, Federa Bank's net profit or PAT at the Kochi-based lender increased by 11 per cent year-on-year (YoY) to Rs 1,057 crore exceeding Zee Business research estimates at Rs 967 crore. In the same quarter last year, the bank's net profit was reported at Rs 954 crore.

Net interest income (NII) at the lender also grew 14.9 per cent on-year to Rs 2,367 crore, coming more or less in line with the estimate of Rs 2,362 crore. The bank's net interest income for the September quarter of the previous financial year stood at Rs 2,056 crore. Net interest income is the difference between the interest earned and the interest amount spent. 

Nevertheless, the net interest margin (NIM)- the key profitability metric took a slight hit and came in at 3.12 per cent during the review quarter as against 3.22 per cent reported during the corresponding period of the previous year.

On the asset quality front, the GNPA ratio improved marginally on a quarter-on-quarter basis from 2.11 per cent in June quarter to 2.09 per cent in the September quarter.

Similarly, the net NNPA ratio also improved to 0.57 per cent from 0.6 per cent in the previous quarter.

Here's how global brokerages view Federal Bank post Q2

Citi has continued with its 'buy' call on the counter with the target pegged at Rs 231. The set target implies a potential upside of 25 per cent from the previous close. The brokerage said the return on assets at 1.28 per cent was better than its estimates supported by 30bps credit cost, steady NIMs, & fee traction.

The brokerage further highlighted the below positives for the stock

[1] Secured lending dominance helped curtail slippages/credit cost at <80bps/30bps;
[2] LCR, despite 1 per cent qoq deposit growth, improved to 115% (vs 112%)
[3] Core NIMs (adj for penal charges rose 2bps qoq) with a rising share of high-yielding advances;
{4] Loan processing/para-banking fees gained traction

UBS also reiterated its 'buy' stance on the counter with the target of Rs 250. As per the brokerage, the Q2 PAT beat at the lender was driven by lower credit costs and stable asset quality. Also, the bank during the period logged healthy loan growth, while CASA deposits rose 4 per cent sequentially. The stock currently is trading  at c1.1x FY26E P/BV)

Further it added that clarity on strategy for improving NIMs could be a near-term catalyst.

Federal Bank share price performance 

In the last one year, the stock has gained by 42 per cent as against Nifty Private Bank's gain of 14 per cent.