Motilal Oswal Maintains 'Buy' Rating on Federal Bank, Target Price Rs 325
Federal Bank Reports Strong Q4FY26 Performance
Federal Bank, a prominent Indian banking institution, has released its fourth-quarter (4Q) financial results for the fiscal year 2026 (FY26). According to the bank's report, the Profit After Tax (PAT) for 4QFY26 stood at INR12.6 billion, representing a significant year-over-year (YoY) increase of 22% and a quarter-over-quarter (QoQ) rise of 21%. This marks a notable 16% beat on expectations.
The bank's Net Interest Income (NII) was a key driver of this growth, increasing by 33% YoY and 20% QoQ to INR31.7 billion. This marked a 15% beat on expectations, partly due to interest earned on IT refunds and consistent performance otherwise. The Net Interest Margin (NIM) improved by 8 basis points (bp) YoY and 2bp QoQ to 3.2%, while reporting a basis of 3.74%.
Federal Bank's loan growth also contributed to its strong performance, with advances expanding by 12.7% YoY and 3.5% QoQ. Deposits grew by 11% YoY and 5% QoQ, while the bank's Current Account Savings Account (CASA) growth stood at 20.6% YoY and 8.3% QoQ, leading to an improvement in CASA mix to 32.9% (up from 32.1% in 2QFY26).
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Outlook and Recommendations
Motilal Oswal's research team has raised their PAT estimates for Federal Bank by approximately 2.5% and 2.3% for FY26 and FY27, respectively. This revised estimate takes into account the bank's expected expansion in NIM, healthy fee income, and loan growth outlook. The team estimates Federal Bank to deliver a Return on Assets (RoA) and Return on Equity (RoE) of 1.26% and 12.2%, respectively, in FY27.
| Estimates | FY26 | FY27 |
|---|---|---|
| PAT Growth | 22% YoY | 16% beat |
| NII Growth | 33% YoY, 20% QoQ | 15% beat |
| NIM | 3.2% (3.74% reported) | - |
| RoA | - | 1.26% |
| RoE | - | 12.2% |
Motilal Oswal reaffirms their BUY recommendation for Federal Bank, with a target price of INR325, based on an estimated 1.7 times September 2027 Annualized Book Value (ABV).
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Investor Takeaway
Investors should consider buying Federal Bank due to its healthy NII and tax reversal.
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