Federal Bank Q4 Results Review: Margins To Get Support From Higher Yielding Asset Mix

Federal Bank Ltd.'s net interest margin may expand in FY25 with support from high yielding asset mix, according to analysts. The lender's NIM rose 2 basis point sequentially to 3.21% despite cost of funds increasing 17 basis point quarter-on-quarter.

The lender's standalone net profit stayed flat year-on-year at Rs 906 crore. Sequentially, profit fell 10%. Net interest income or core income rose 15% to Rs 2,195 crore. Other income was up 2.7% to Rs 754 crore.

Asset quality improved, with the gross non-performing-asset ratio improving 16 basis points quarter-on-quarter to 2.13%. The net NPA ratio stayed flat at 0.6%, compared with 0.64% in the previous quarter.

Here is what analysts had to say about Federal Bank's Q4 results:

• Provisioning write-back offset by elevated overhead and employee costs

• Rising share of high-yielding segments like commercial banking, used vehicles, LAP, MFI etc., should mitigate deposit cost pressure

• Elevated opex/assets at 2.1% and normalisation of credit cost would cap RoAs at 1.2% and RoEs at less than 14%

• Expect credit cost to normalise to 0.4-0.6% over FY25-26.

• Maintain 'sell' with a target price of Rs 155 apiece.

• Other income is down 13% QoQ due to a strong base consisting of gains of Rs 80 crore from sale proceeds from FedFina listing.

• Opex up 19% QoQ due to a wage hike related to pension provision and a seasonal uptick in other overheads.

• The cost of funds may move up over the next couple of quarters, but would be offset by improvements in blended yields due to a focus on granularisation.

• May approach RBI regarding corrective actions taken for co-branded card partnerships and seek approval for the resumption of new issuances.

• Reduce credit costs by 37 bps over FY25/26.

• Revise RoA estimates, to be up by 4 bps to 1.23% for FY25/26.

• Expect NIM to compress 8 bps over FY25/26 due to reduced leverage, a strong fee income contribution, and lower credit costs.

• Retain 'hold' with a revised target price of Rs 190 apiece from Rs 170 apiece earlier. This implies a potential upside of 10.4%.

• Expect bank to deliver RoA of 1.36% and RoE of 15.1% in FY26

• Opex expected to remain stable with a 5% increase for FY25, excluding one-time impact of Rs 160 crore

• Margins may improve slightly over FY25 as improvements in lending yields offset the rise in funding costs

• Maintain 'buy' with a target price of Rs 195 apiece, implying a potential upside of 16%.

• Strong loan growth of 19.9% YoY, and improvement in NIM to 3.21% were key positives

• Expect loan book and earnings to clock a CAGR of 17.5% and 20.2%, respectively over FY24-FY26

• Expect RoA of 1.4% in FY26

• CASA ratio declined to 29.38% due to faster term deposit growth

• No major financial impact expected on asset or fee income side after RBI barred the lender from issuing co-branded credit cards

• Maintain 'buy' with a target price of Rs 204 apiece, implying a potential upside of 21%