Q3 results: Should you buy Federal Bank shares after Q3 earnings? Here’s what brokerages say

Federal Bank share price declined over 2% on Wednesday dragged by overall weak market sentiment, especially in bank stocks. Federal Bank shares fell as much as 2.60% to ₹145.80 apiece on the BSE.

Federal Bank registered a 25.3% growth in its net profit for the third quarter of FY24 at ₹1,006.74 crore as compared to ₹803.61 crore in the corresponding quarter of last year.

The bank’s net interest income (NII) in Q3FY24 increased 8.5% to ₹2,123.4 crore from ₹1,956.5 crore, YoY. Net interest margin (NIM) during the December quarter fell to 3.19% from 3.22% in September quarter.

Read here: Federal Bank Q3 Results: Net profit up 25% to ₹1,007 crore, NII grows 8.5% YoY

Most analysts remain bullish on Federal Bank shares after Q3 results. Here’s what brokerages have to say:

Nuvama Institutional Equities

Federal posted Q3FY24 NII in line, but a beat on PAT driven by higher trading gains from a stake sale in Fedbank Financial Services. NIM edged down 3 bps QoQ to 3.19%, which is good given tight deposit-taking in the system, Nuvama institutional Equities noted. 

Federal Bank stock is trading at 1.1x BV FY25E adjusted for FEDFINA. The brokerage believes it can trade up to 1.25x. It has built in moderation in RoA for FY25E/26E on normalizing credit cost and RBI’s nudge on LDR. 

Given inexpensive valuation and a low-risk, well-balanced business model, Nuvama retained ‘Buy’ rating on the stock and raised the target price to ₹185 per share from ₹180 earlier, based on 1.3x one-year forward earnings and ₹13 for FEDFINA. 

“Federal will announce a new CEO shortly (incumbent retires in Sep-24). While the bank has been talking about succession planning, the CEO’s retirement is a near-term overhang,” said the brokerage.

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Antique Stock Broking

Federal Bank’s NIM performance has been weaker than expected, however, as the cost of deposits peak in a couple of quarters and the lending mix gradually moves in favor of better yielding products, we expect NIM to be in a narrow range, said Antique Stock Broking. 

Over the cycle, FB has maintained strong asset quality performance and has demonstrated its ability to gradually improve fee income contribution and its willingness to invest in technology and partnerships to build profitable businesses, which augurs well for the bank from a medium-term perspective, it added. 

The brokerage maintained a ‘Buy’ call with an unchanged target price of ₹190 per share.

Also Read: HDFC Bank share price cracks 7% after Q3 results; what should investors do?

Motilal Oswal Financial Services

According to Motilal Oswal Financial Services, Federal Bank reported broadly in-line performance, with healthy business growth and slight weakness in asset quality and margins. However, in-line NII growth, controlled provisions, and higher treasury income drove the earnings beat. 

The brokerage firm broadly maintained its estimates as controlled credit costs and healthy other income is expected to keep earnings robust. It estimates the bank to deliver RoA/RoE of 1.3%/14.5% in FY25. It reiterated a ‘Buy’ rating on the stock with a target price of ₹175 per share.

Yes Securities

Yes Securities maintained a ‘Buy’ rating on Federal Bank, which has been one of its top picks since June 2021, with an unchanged price target of ₹195. It values the standalone bank at 1.3x FY25 P/BV for an FY24E, FY25E and FY26E RoE profile of 14.9%, 15.0% and 15.5%.

At 11:10 am, Federal Bank shares were trading 1.80% lower at ₹147.00 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.