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HDFC Securities Institutional Equities
On the back of its best-in-class liability franchise and a granular loan book, Federal Bank Ltd. has dialled up its FinTech partnerships to address its product (unsecured loans) and customer segment gaps (salaried millennials) and drive growth, especially in high-yield retail segments, to boost profitability metrics.
Having proven for scale over the past couple of years, these partnerships are now maturing and upping the quality quotient (greater productivity).
Each of these individually stitched collaborations dovetails into cross-sell across customer cohorts, thus enhancing the potential profitability of the partners and attracting more high potential alliances.
While near-term return on equities are likely to trend marginally lower from the recent equity raise, we remain constructive on the bank's ability to monetise its partnerships and amp up its productivity metrics, thereby driving a sustainable 10-15 basis points return on equity reflation over FY23-26E.
We resume coverage with a high-conviction 'Buy', and a target price of Rs 190 (1.5 times March-25 adjusted book value per share).
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