Federal Bank: Target Price of Rs 300 Set by Prabhudas Lilladher

Federal Bank's Strong Quarter Driven by Core PPoP Growth

Federal Bank has reported a decent quarter, with its core Post Provision Profit (PPoP) beating the previous estimate by 9.5%. This growth was primarily driven by better fees and the recovery of INR 4.6 billion in interest on IT refunds. The use of this interest income helped shore up the Provision Coverage Ratio (PCR) quarter-on-quarter from 76% to 87.8%, exceeding the expected Effective Coverage Loss (ECL) requirement.

The bank's credit cost guidance of 50-60 basis points is likely to be reassessed, with the research team at Prabhudas Lilladher factoring provisions of 48 basis points. However, there are potential downside risks associated with this projection. Notably, loan growth was slightly lower than expected, but the bank's efforts to recalibrate its loan portfolio are progressing well. Specifically, targeted segments such as Corporate Banking (CoB), gold, unsecured, and Loan Against Property (LAP) are seeing good growth.

Key Highlights

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The bank's liability mix is also being refined, with a higher share of Current Account Savings Account (CASA) and Retail Term Deposits (RTD).

Outlook and Recommendation

In light of these developments, Prabhudas Lilladher has tweaked its multiple on March 28, 2028's Absolute Book Value (ABV) to 1.5x from 1.4x and raised its target price to INR 300 from INR 275. The research team has also changed its rating to 'ACCUMULATE' from 'BUY'.

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