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Prabhudas Lilladher Report
Federal Bank Ltd. reported a slightly weak quarter with core pre-provision operating profit missing our estimate by 3.7% led by higher opex while asset quality saw a blip as gross non-performing asset was 2.38% (our estimate: 2.28%) due to higher slippages and lower recoveries.
Loan growth was 5.2% QoQ (~2.5% for system) and bank expects this momentum to sustain. We expect credit growth of 18% YoY in FY24E.
While net interest margin for Q1 FY24 declined by 11 basis points QoQ to 3.3% due to back-ended loan growth and pricing pressures, margins could expand in Q2 FY24 as yields have risen since the last 45 days.
For FY24 we are factoring a NIM decline of 14 bps to 3.1%. However, net interest income/NIM estimates could be upgraded if Federal Bank raises capital.
Shareholder approval for fund raise is to the tune of Rs 40 billion. Credit cost environment remains benign and we raise FY24/25E profit after tax by 4.5%/2.5% due to lower provisions.
Maintaining multiple at 1.5 times on FY25E adjusted book value, we retain 'Buy' and raise target price to Rs 175 from Rs 170.
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