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Prabhudas Lilladher Report
Federal Bank Ltd. reported its strongest quarter with beat on all fronts. Net interest income grew by 19% YoY, in tandem with loan growth (up 20% YoY) as net interest margin was at multi-quarter high of 3.6%.
Loan growth was broad based with corporate/small and medium enterprise outpacing retail. Competitive intensity in wholesale lending in reducing while private capex demand is improving.
FY23 loan growth guidance is 18-20% while NIM target is raised by 5-10 basis points to 3.3%. Fees were healthier while opex was controlled and cost-income is expected to reduce.
Credit quality remains resilient with one time restructuring pool performing well. We raise FY23/24 profit after tax by 16%/13% each and over FY22-25 earnings could see a 25% compound annual growth rate.
Federal Bank warrants a rerating owing to consistent boost in core profitability.
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