This Mid-Cap Banking Stock To Give Potential 36% Gain, 90% Final Dividend Declared

Motilal Oswal has recommended investors to buy the stock of Federal Bank Ltd for a potential 36% gain if you buy it at its current market price of Rs 95.25 apiece. According to Motilal Oswal, it has registered robust sequential loan growth. Gross advances grew approximately 16.3% YoY to approximately INR1.5t and reported a sequential growth of 4.6% (v/s 2.8% QoQ in 4QFY22).

1. Federal Bank Stock Outlook

The current market price of the stock is 95.25 at the time of writing the story. The stock has touched a 52-week high of 107 and 52-week low of 77.50. The stock has given a return of 11.49% in one year. According to Oswal, If you buy the stock today at Rs 95, it has the potential to give you a return of 36% with a target price of Rs 130.

Current Market Price	95.25
Target Price	130
Potential Gain	36%
52-Week High	Rs 107
52-Week Low	Rs 77.50
1-Year Return	11.49%

2. Federal Bank To Pay 90% Dividend Soon

The leading private bank has announced an equity dividend of 90% on May 6, 2022 amounting to Rs 1.8 per share. As per the BSE filing, "The Board of the Bank has recommended the payment of final Dividend @ Rs 1.80 per equity share of the face value Rs. 2 each (90%) for the financial year 2021-22 subject to the approval of the Shareholders at the ensuing Annual General Meeting of the Bank. 

The ex-dividend date is 19 July, 2022. 

It has a good dividend history and regularly declared dividend for the last 5 years. The dividend yield is 0.74%

3. Retail Credit Growth

According to the internal classification of the bank, retail credit grew 16.7% YoY while wholesale book posted a growth of 15.8% YoY. With this, the share of retail in mix further improved to 55% in 1QFY23 from 54% in 1QFY22. Total deposit base grew 8.2% YoY (+1% QoQ) to INR1.83t. Total customer deposits rose 9.1% YoY (+0.8% QoQ) while CASA grew 15% YoY. However, sequentially it was flat with a marginal growth of 0.6% QoQ. As a result, CASA ratio declined 10bp QoQ to 36.84%.

Growth in term deposit was 6.1% YoY and 1.0% QoQ (v/s 4.4% QoQ in 4QFY22). Share of retail deposits improved to 94% in 1QFY23 from 93% in 1QFY22. Certificate of deposit grew 12% YoY while interbank deposits declined sharply by approximately 56% YoY.

4. Valuation

According to Oswal, "Overall, FB posted a healthy growth in advances, aided by strong system-level growth. Deposits were largely flat on a sequential basis as there was stiff competition among the banks to garner the same. CASA trends remained stable with a marginal decline to 36.8%. We maintain our BUY rating with a TP of INR130 (premised on 1.2x FY24E ABV for the core bank + INR10/share from subs/JV)."

5. About Federal Bank Ltd

Federal Bank has been in the service of the nation since pre-Independence times. Incorporated on April 23, 1931, as the Travancore Federal Bank Limited, Nedumpuram under the Travancore Companies Regulation, 1916, the Bank was renamed as The Federal Bank Limited in December 1949, under the stewardship of Late K.P., according to its website. It has a market capitalization of Rs 20,025 crore.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.