Federal Bank Q4 Results Review - Steady Quarter: Dolat Capital

Dolat Capital Report

Federal Bank Ltd. reported in-line net interest income growth at 15% YoY, with stable net interest margin at 3.2%. Operating profits (-17% YoY) were impacted by one-time wage hike related pension provisions of Rs 1.62 billion. However, negative credit costs driven by strong recoveries and reversal of standard provisions helped restore profitability, with return on asset at 1.2%.

Management guided for RoA expansion by 4-5 bps in FY25. Even as we factor in lower net interest margin moderation relative to peers and operating leverage over FY25-26E, RoAs at 1.2% for FY25/26E remain lower versus FY24 owing to normalisation in credit costs (40-45 bps) and missing one-off treasury gains (Fedfina stake sale in FY24).

Earnings for FY26E benefit from lower opex assumptions.

We maintain “Accumulate” rating with target price of Rs 185 (from Rs 165), valuing the bank at 1.3 times FY26E price/adjusted book value against RoA/RoE of 1.2%/14%.

While strong growth from high yielding segments has helped NIM, their seasoning and impact on credit costs remains a monitorable.

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