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ICICI Securities Report
Federal Bank Ltd. has reported Q3 FY24 profit after taxc of Rs 10.1 billion, up 25% YoY, driven by ~13% YoY growth in operating earnings. Loan growth was healthy at 18% YoY and 3.3% QoQ.
Net interest margin declined 3 basis points QoQ (down 36 bps YoY) to 3.19% as cost of deposits continued to rise (up 19 bps QoQ).
Asset quality was stable except single corporate exposure of Rs 780 million, which appears transitory.
Federal Bank would aim to moderate liquid-to-deposit ratio from the current ~83% to ~80% by CY24, which could constrain loan growth, in our view.
We, thus, expect loan compound annual growth rate of ~16% for FY25E-FY26E.
We expect ~10 basis points decline in net interest margin and upward pressure on credit costs, partly offset by improvement in opex ratios.
Overall, we see the bank delivering ~1.2% return on asset and ~13% return on equity for FY25E-26E.
Maintain 'Buy' with an unchanged target price of Rs 175.
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