Federal Bank shares rose nearly 8% in intraday trading Tuesday, following strong performance in the second quarter of FY25. The private lender reported a net profit of Rs 1,056.69 Million, up 10.78% from Rs 953.82 Million in the same quarter last year. At 12:08 pm, shares of Federal Bank were up 8.36% at Rs 200.15 on the Bombay Stock Exchange (BSE).

The increase in profit was accompanied by a 21.91% year-on-year increase in total revenue to Rs 7,541.23 billion in the quarter ending September 30, 2024. Operating profit before provisions and contingencies also increased significantly, totaling Rs 1,407.01 Million, up 9.87%. YoY.

Despite the net interest margin (NIM) falling from 3.22% to 3.12% annually, net interest income increased by 15.11% annually to 2,367.23 billion rupees. Additionally, the bank’s net worth increased by 19.49% on an annual basis, reaching 31,108.20 billion rupees as of September 30, 2024. Capital Adequacy Ratio (CRAR) remained at a healthy level of 15.20% in line with Basel III rules.

On the asset quality front, Federal Bank reported a 10.10% year-on-year increase in gross non-performing assets (GNPA) to Rs 4,884.49 billion. However, the GNP rate decreased to 2.09% from 2.26% the previous year. Net non-performing assets (Net NPA) also increased by 7.51% to 1,322.29 billion rupees, but the net NPA rate decreased from 0.64% to 0.57% annually.

The bank showed strong growth in its loan book; gross advances increased by 19.31% y-o-y to 2,33,820 billion rupees and total deposits increased by 15.56% y-o-y to 2,32,868 billion rupees. Retail advances increased by 17.24% to Rs 72,701.75 billion, while corporate advances increased by 10.48% to Rs 77,953.84 billion.

Highlighting the strong performance, Federal Bank Managing Director and CEO KVS Manian said, “The second quarter was solid for the Bank, driven by strong momentum across various operational sectors. This is clearly reflected in our success in surpassing the 1000 Crore net profit milestone for two consecutive years. Now CRISIL “Our deposits, upgraded to AAA by , represent a solid core of the series.”

SHOULD I BUY, HOLD OR SELL?

Broker Anand Rathi maintains a positive outlook on Federal Bank, suggesting that it is a good investment opportunity.

“Stable operating profits and modest provisions (cost of credit 30 basis points) kept Fed’s profitability strong, with return on assets (RoA) at 1.28%. Going forward, we expect the bank to deliver high-teens growth and generate a sustainable ROA of 1.2%,” the brokerage said in its analysis.

Anand Rathi’s analysis highlighted that asset quality remained stable, with slippages recorded at Rs 4.3 billion, 0.8% of loans; This is a better figure than expected. The company predicts that loan growth will remain in the high teens, especially due to the impact of strong retail and SME growth. “We account for ~18% credit growth for FY25-27, largely driven by strong traction in the retail portfolio,” they added.

In terms of valuation, Anand Rathi has set a target price (TP) of Rs 242, based on a sum-of-the-parts valuation. “Our TP comes from 1.3x FY27e adjusted book value, indicating a positive outlook for the bank.”

Given the bank’s strong earnings and positive growth forecasts, investors may find Federal Reserve an attractive addition to their portfolio.

(Disclaimer: The views, opinions, advice and recommendations expressed by experts/brokers in this article are their own and do not necessarily reflect the views of India Today Group. You are advised to consult a qualified broker or financial advisor before engaging in any actual investment or trading options. )