Buy This Banking Stock For 35.6% Upside, In 1 Year: Emkay Global Recommends

The brokerage firm Emkay Global recommends buying the stocks of Federal Bank, for a 35.60% growth. "Federal Bank remains our preferred pick in the small/mid-cap space, given its better liability/asset quality profile, management stability, strong digital adoption, and expected improvement in return ratios," the firm said.

Target Price

The Current Market Price (CMP) of Federal Bank is quite low, at Rs. 96. Emkay Global has estimated a Target Price for the stock at Rs. 130. The company is expected to offer a 35.60% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 96
Target Price	Rs. 130
1 year return	35.60%

Company performance

Federal Bank (FB) reported a beat on PAT at Rs. 5.2bn in Q3, despite higher opex (a phenomenon seen across banks), aided by better NIMs, fees, and continued reduction in LLP. Headline asset quality improved as GNPA was down 18bps qoq to 3.1%, while the restructured pool slightly moderated to Rs. 35bn/2.5% of loans. Overall credit growth improved to 12% yoy/5% qoq at Rs. 1.4tn, mainly led by strong traction in the corporate book. Fresh slippages were slightly higher than expected at Rs. 4.5bn (1.4% of loans), due to NPAs from the corporate and business banking segments.

Comments by Emkay Global

This banking stock has a good potential to grow. The bank's GNPA ratio improved by 18bps qoq to 3.1% due to better recoveries, including the sale of NPAs to ARC. On this growth, Emkay Global stated, "We expect FB's RoA/RoE to improve to 0.9-1.1%/11-14% over FY22-24E on better NIMs, fees, and lower costs. Potential value unwinding in the NBFC subsidiary FedFina will be an additional catalyst for the stock in the medium term. However, slower retail growth if the systemic risk remains elevated; higher NPA formation/relapse from the restructured pool due to prolonged pandemic."

About the company

Federal Bank is one of the major Indian commercial banks in the private sector having 1250+ branches and 1800+ ATMs/Recyclers spread across different states in India. Federal Bank has just added 27 branches in the past 5 years. The bank also has been most aggressive among peers in partnering with fintech/neo-banks as part of its transformational strategy to focus on digital banking to drive growth at a far lower cost. The Bank is a pioneer among traditional banks in India in the area of using technology.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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