Checkout Budget Highlights 2023Prabhudas Lilladher's research report on Federal Bank
Federal Bank (FB) at its Analyst Day reiterated that earnings consistency and profitability would remain focus areas. Key levers for RoA expansion would be to (i) maintain pristine asset quality (ii) consistently grow business with digital focus (iii) enhance share of higher NIM lending segments by leveraging fintech partnerships (iv) increase fee to assets (add 10bps every year) and (v) improve efficiency. For next 3 years, FB is targeting to double higher yielding segments that contribute 20.53% to loans, compared to overall loan growth guidance of high teens. Share of these segments would rise to 25% suggesting ~15bps NIM improvement, over steady state level of 3.35%. If FB achieves its revenue related targets, core earnings for FY24/25E could see a 10-15% upgrade leading to FY25E RoA of 1.4% (vs 1.2% now). Our FY24/25E earnings estimates remain unchanged.
Outlook
We maintain multiple at 1.5x FY25E ABV and TP at Rs175; current valuation at 1.1x is attractive. Retain BUY.
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