Analysts stay upbeat on federal bank post strong Q1

Brokerages gave a thumbs-up to 's June quarter result, with most maintaining a bullish rating on the stock. The bank on Friday posted about a 64% jump in net profit at ₹600.7 crore for the June quarter.

Following the results, most analysts retained their price target on the stock. The average price target of seven brokerages is about ₹122, which is about 23.5% above the stock's Friday closing price of ₹98.80.

"The bank is steadily improving its return ratios and this would drive the next leg of re-rating," said Kotak Institutional, adding that Federal Bank is its preferred pick among mid-tier banks.

The lender's asset quality improved with gross NPAs falling to 2.69% of gross advances at the end of the June quarter against 3.5% a year ago.

Emkay Global, , , , Nirmal Bang and IDBI Capital maintained buy ratings on the stock.

IDBI Capital said the bank has abated the Covid-19 impact better with lower restructuring as compared to its peers among mid-cap private banks. "We believe there is potential for an improvement of 5-10 basis points every year in RoA (return on assets)," said Capital, which has a price target of ₹120 on the stock.

Emkay said Federal Bank will be one of the key beneficiaries of the recent RBI move to remove the cap on NRI deposits/regulatory forbearance till October/November. The brokerage said it should witness accelerated deposit flows, improving its credit growth outlook. "Potential value unwinding in the NBFC subsidiary (FedFina) via an IPO could be an additional catalyst for the stock and also shore up receding capital levels," said Emkay, which raised its price target to ₹128 from ₹125.