Target: ₹170

CMP: ₹137.95

Federal Bank reported strong advances growth of 19 per cent/4 per cent yoy/qoq, driven by continued growth in the auto (+27 per cent/6 per cent yoy/qoq), CV (+65 per cent/12 per cent yoy /qoq) and corporate book (+19 per cent/6 per cent yoy/qoq). NII grew 27 per cent/11 per cent yoghurt/qoq. The bank witnessed an impressive expansion margin of 22 basis points/19 bps yoy/qoq to 3.49 per cent (multi-quarter high).

Core fee income continues to remain robust growing at 32 per cent yoy aiding non-interest income growth of 10 per cent yoy. Provisions remained benign with credit costs of 47 bps during the quarter, driving profitability for the bank. PAT grew by 54 per cent/14 per cent yoghurt/qoq.

Asset quality improved marginally aided by strong recoveries even as slippages from the restructured pool kept retail slippages marginally elevated.

Federal Bank continues to progress well and intends to expand RoA/RoE with key drivers being: Robust credit growth with improving share of high-yielding products; granular liability franchise; gradual moderating opex; and benign credit trajectory cost backed by improving asset-quality metrics.

The stock currently trades at 1.2x September 24E ABV and we value the stock at 1.5x September 24E ABV to arrive at a target price of ₹170.

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