Federal Bank recently announced its Q1FY24 results, revealing a notable 42.2% year-on-year rise in net profit. Despite the mixed numbers, brokerages remain optimistic about the stock's potential, with target prices suggesting an upside of 22-38%.
Following the Q1FY24 results, Federal Bank's share price saw a 2% increase in morning trading on BSE. Federal bank reported a net profit of Rs 853.74 crore for 1st quarter of FY24, marking strong growth compared to Rs 600.66 crore in same period last year. NII for Q1FY24 witnessed a 19.6% rise, reaching Rs 1,918 crore compared to Rs 1,604.5 crore in corresponding quarter last year. However, the NIM experienced a marginal contraction of 7 basis points to 3.15% from 3.22% in June quarter of previous year.
Although Federal Bank's Q1FY24 results were mixed, analysts at brokerage firms maintain a positive outlook on the stock. Motilal Oswal Financial Services maintained a "Buy" rating with a target price of Rs 155, indicating a potential upside of 22%. While there was a beat in net earnings, the NII missed expectations due to margin compression. The overall business growth remained healthy, supported by traction across segments and a strong liability franchise. Motilal Oswal expects Federal Bank to achieve RoA of 1.3% and RoE of 15.8% in FY25.
Nuvama Wealth Management also maintains a "Buy" rating with a target price of Rs 160, implying a potential upside of 26%. Despite a decline in net interest margin, Nuvama highlights the strong core fee growth and higher-than-expected growth in non-fee other income. They acknowledge the cheap valuation of the stock and believe that margins could expand in Q2FY24.
Prabhudas Lilladher, with a "Buy" rating, raised the target price to Rs 175, suggesting a significant upside of 38%. They expect Federal Bank to achieve a credit growth of 18% in FY24 and anticipate potential margin expansion in Q2FY24 due to increased yields. Prabhudas Lilladher also considers the benign credit cost environment and projects upgraded PAT estimates for FY24 and FY25.
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