Federal Bank shares surge to all-time high. Brokerage has 'Buy' tag
1 min read 05 Sep 2022, 10:33 AM ISTThe brokerage has increased its target price on the bank stock to ₹149 per share
PremiumShares of Federal Bank jumped nearly 7% to hit all-time high level of ₹129 apiece on the BSE in Monday's early deals. The bank stock has been in upward trend since the last few days as it is up about 12% in the last five trading sessions.
“We think that Federal Bank shares continue to offer attractive risk-reward despite stock return of around 25% in the last six months and 41% run-up since June 2022 low," said domestic brokerage and research firm Nirmal Bang.
In the last 12 years, the bank has reduced branch share of Kerala to 46% (it was 60% in FY11), indicating efforts taken to diversify geographically. The brokerage said its key thesis on Federal Bank is premised upon improving financial performance and undemanding valuation. It has a Buy tag on the bank stock and has increased its target price to ₹149.
"The corrective measures taken by the bank, such as lower corporate loan ticket sizes, are worth noting. However, we believe that investors would be more comfortable if the bank can build a higher contingent buffer. The bank is well known for its granular and stable liability profile, which translates into a highly competitive cost of funds (CoF). Tier-I capital currently stands at 13.31% and the bank has no plans to raise fresh equity capital as of now," the note stated.
The bank is clearly displaying a pro-growth mindset with a sharper focus on margin-accretive products such as CV/CE, unsecured retail loans etc. At the same time, the bank has been very clear about not compromising margins/credit quality for growth in the corporate segment. It also has a highly competitive CoF, which should support competitive pricing, Nirmal Bang added.
“Given the improving asset profile and increasing share of retail loans, we believe there is a good case for NIMs to expand further.Subjectively, we assess that the management’s growth mindset indicates pursuit of growth in high-margin products. We believe that a highly competitive CoF would support competitive pricing while ensuring that underwriting standards are not comprised for growth," the note said.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
