Federal Bank shares: Federal Bank reported nearly flat profits for the March quarter due to provisions for wage hikes, but analysts noted that the overall performance exceeded expectations. They highlighted the unchanged net interest margin (NIM) and minimal credit costs as positive factors. Looking ahead, analysts are closely monitoring the upcoming replacement of current MD & CEO Shyam Srinivasan, whose term ends on September 22, 2024.
Motilal Oswal Securities stated that Federal Bank’s Q4 results were generally in line with their forecasts, marked by strong business expansion and improved asset quality. However, they pointed out a decrease in other income and higher operating expenses due to residual wage provisions, resulting in a shortfall in operating profits.
NIMs saw a slight expansion to 3.21 percent, with management anticipating further improvement in margins throughout FY25 as increases in lending yields counterbalance rising funding costs. We maintain our projections, anticipating robust earnings supported by enhancements in operating efficiency, consistent business growth, and margins. We reiterate our BUY recommendation for the stock, setting a target price of Rs 195,” they commented.
Kotak Institutional Equities observed that Federal Bank’s earnings beat was driven by a smaller-than-expected contraction in NIM, stronger fee income growth, and impressive asset quality metrics that kept credit costs minimal, despite operating costs being affected by the wage settlement.
“This pattern of earnings outperformance mirrors trends seen in previous years,” noted Kotak Institutional Equities.
The brokerage is adopting a more cautious stance, projecting a conservative outlook for NIM, slower growth in fee income, and slightly higher credit costs. This caution is influenced by the composition of assets, which increasingly comprise higher-yielding loans.
“There’s a strong likelihood that another year of limited slippages could see the bank meeting its guidance, surpassing our forecasts,” Kotak stated, revising its target price upward to Rs 190 from the previous Rs 185. -Federal Bank shares
Federal Bank’s future MD and CEO
The Federal Bank board has established a search committee to assess both internal and external candidates for the position, with the selected names to be forwarded to the RBI within the next 2-3 weeks. Nirmal Bang indicated that clarity regarding the chosen candidate is expected within 3-4 months.
Nirmal Bang maintains its ‘BUY’ rating on Federal Bank, revising the target price to Rs 204 (evaluated at 1.35x March 2026E ABV plus a subsidiary value per share of Rs 11.40), compared to the previous target of Rs 178.
Recent reports have suggested that Krishnan Venkat Subramanian (KVS) Manian, who resigned as joint MD of Kotak Mahindra Bank this week, might join Federal Bank.
Nuvama expressed that if an internal candidate, either Harsh or Shalini, is approved by the RBI, it would be satisfactory. However, there is uncertainty regarding an external candidate, and the actual CEO will only be confirmed upon RBI approval. Until then, the market and media may speculate that Manian could potentially be the CEO, which would also be positive if it occurred.
The brokerage has raised its target price on Federal Bank to Rs 195 from Rs 185 previously.
Antique Stock Broking has retained its earnings estimates, forecasting a RoA of 1.2 percent and a RoE of 13 percent for FY25-26. They have slightly adjusted their target price to Rs 195 and maintain a ‘Buy’ rating on Federal Bank’s stock.
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