Federal Bank Q3 Results Review - Net Interest Margins Declined QoQ; RoA Guidance Maintained: IDBI Capital

IDBI Capital Report

Federal Bank Ltd.'s net interest margin declined sequentially during Q3 FY24 led by increase in cost of funds. Credit growth stood at 18.4% YoY (20% YoY Q2 FY24) backed by strong growth across the segments. Asset quality remained stable with gross non-performing assets at 2.29% versus 2.26% QoQ.

Deposits growth stood at 19% YoY versus 23% YoY (Q2 FY24). Management guided for 18-19% deposit growth for FY24 to achieve 80% CD ratio. net interest income grew by 3% QoQ; Operating profit grew by 8.5% QoQ led by higher other income (up 18% QoQ).

Provisions increased by 108% QoQ due to rise in slippages; result return of equity to 1.39% (1.36% Q2 FY24). Management maintained guidance of return of assets of 1.4% by FY25.

We have moved to FY26E estimates and maintain 'Buy' rating with the new target price of Rs.200 (earlier Rs.195) based on pre-Covid average. price/adjusted book of 1.4 times FY26.

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