Prabhudas Lilladher Bullish On Midcap Banking Stock, Sees 36% Upside, Buy

Prabhudas Lilladher retains a Buy on Federal Bank with an increased target price of Rs 175 apiece. The brokerage sees a robust potential upside of up to 36% from its current market price.
On Thursday, Federal Bank reported a net profit of Rs 853.74 crore, up 42% year over year (YoY) from Rs 600.66 crore in the same period the previous year.

Federal Bank is a midcap private sector bank. It has a market capitalisation of Rs 27,375.02 Crore.

Margins and capital raise to be watched

According to Prabhudas Lilladher, FB reported a slightly weak quarter with core PPoP missing PLe by 3.7% led by higher opex while asset quality saw a blip as GNPA was 2.38% (PLe 2.28%) due to higher slippages and lower recoveries. Loan growth was 5.2% QoQ (~2.5% for system) and bank expects this momentum to sustain.

The brokerage said, "We expect credit growth of 18% YoY in FY24E. While NIM for Q1'24 declined by 11bps QoQ to 3.3% due to back-ended loan growth and pricing pressures, margins could expand in Q2'24 as yields have risen since the last 45 days. For FY24 we are factoring a NIM decline of 14bps to 3.1%. However, NII/NIM estimates could be upgraded if FB raises capital. Shareholder approval for fund raise is to the tune of Rs40bn.

It added, "Credit cost environment remains benign and we raise FY24/25E PAT by 4.5%/2.5% due to lower provisions. Maintaining multiple at 1.5x on FY25E ABV, we retain BUY and raise TP to Rs175 from Rs170."

Stock Movement

On Friday, the share price of Federal Bank closed 1.97% higher at Rs 129.30 apiece. However, the stock declined 4.29% in the past 1 week. It has given 32.89% positive return in the past 1 year. It has given 24.87% positive return in 2 years, 83.33% in 3 years and 80.78% positive return in the past 5 years.

The stock traded its 52-week high on Jan 01, 2023, at Rs 143.35 apiece and 52-week low on Jul 14, 2022, at Rs 96.10 apiece, respectively.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.