Federal Bank Q4 result: NIM dips sequentially; stock declines over 8%

Federal Bank share price: Shares of Federal Bank fell over 8 per cent on BSE after the private sector lender registered a decline in Net Interest Margin (NIM) and higher opex growth in the quarter ending March 31, 2023. 

"Decline in NIMs and higher opex growth led to moderation in sequential operational performance," said Rahul Malani, Deputy VP - Research, Sharekhan by BNP Paribas.

At closing Federal Bank scrip traded over 8 per cent lower on BSE at Rs 127.8  apiece and the stock traded at Rs 128 apiece on NSE. On Friday, May 5, 2023, Federal Bank released its results for Q4FY23 which showed that the company registered a 2.36 per cent and 0.69 per cent dip in GNPA and NNPA respectively.

"Federal Bank reported a beat in earnings in Q4FY23 mainly led by lower credit cost," said Malani.

The private sector lender recorded the highest-ever operating profit at Rs 1,335 crore which grew by 67 per cent year-on-year (YoY), net profit also jumped by 67 per cent at Rs 903 crore YoY. The bank also reported higher provisions and contingencies at Rs 116.66 crore as compared to Rs 75.24 crore in the corresponding quarter in the year-ago period. The return on assets (RoA) for Q4FY23 stood at 1.45 per cent while the return on equity (ROE) was at 17.48 per cent. Total advances increased by 20.14% while total deposits were higher by 17 per cent YoY. The Capital Adequacy Ratio (CRAR) of the Bank stood at 14.81 per cent.

Malani added asset quality metrics were stable barring higher slippages in the agri book. 

“We have delivered industry leading outcomes with Net profit at ₹ 903 Cr QoQ and ROE at an all-time high at 17.48%. The consistent performance exhibited throughout the year has yielded in net annual profits of ₹ 3010.59 crore while maintaining benign asset quality across the segments. This very strong performance is a testimony to the dedicated efforts of the team and the trust of our customers. It’s noteworthy that our market share gains across product categories are gathering momentum quarters,” said Shyam Srinivasan, Managing Director & CEO, Federal Bank.

Brokerage view on Federal Bank 

Mirae Asset Capital has recommended buying shares of Federal Bank for a target price of Rs 177 apiece. The brokerage believes that Federal Bank has a well-balanced portfolio of floating rate books and it has been able to maintain the quality of its assets and keep credit costs under control.

Sharekhan believes RoA expansion has peaked out for the bank and now consistent steady performance would drive the returns. The brokerage believes valuations are inexpensive and the key catalyst is the listing of the non-bank financial company arm.

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