Mumbai Stock Exchange：Federal Bank share price jumps over 8% after Q2 results： Should you buy？

Federal Bank shares soared by nearly 8% during intraday trading on Tuesday, following strong performance in Q2 FY25. The private lender reported a standalone net profit of Rs 1,056.69 crore, a 10.78% increase from Rs 953.82 crore 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 surge in profit was accompanied by a total income increase of 21.91% YoY, reaching Rs 7,541.23 crore for the quarter ending September 30, 2024. The operating profit before provisions and contingencies also saw a significant rise, totaling Rs 1,407.01 crore, up 9.87% YoY.

Despite a decrease in net interest margin (NIM) to 3.12% from 3.22% year-on-year, net interest income rose by 15.11% YoY to Rs 2,367.23 crore. Additionally, the bank's net worth increased by 19.49% YoY, reaching Rs 31,108.20 crore as of September 30, 2024Mumbai Stock Exchange. The Capital Adequacy Ratio (CRAR) stood at a healthy 15.20%, complying with Basel III guidelines.

On the asset quality front, Federal Bank reported an increase in gross non-performing assets (GNPA) to Rs 4,884.49 crore, up 10.10% YoY. However, the GNPA ratio improved to 2.09%, down from 2.26% the previous yearNew Delhi Investment. The net non-performing assets (Net NPA) also rose by 7.51% to Rs 1,322.29 crore, yet the net NPA ratio decreased to 0.57% from 0.64% YoY.

The bank demonstrated strong growth in its loan book, with gross advances up by 19.31% YoY to Rs 2,33,820 crore and total deposits climbing by 15.56% YoY to Rs 2,32,868 croreMumbai Investment. Retail advances increased by 17.24%, reaching Rs 72,701.75 crore, while corporate advances grew by 10.48% to Rs 77,953.84 crore.

KVS Manian, MD & CEO of Federal Bank, highlighted the strong performance: "Q2 has been robust for the Bank, driven by strong momentum across diverse operational verticals. This is clearly reflected in our consecutive surpassing of the 1000 Crore net profit milestone for two quarters in a rowChennai Stock. Our deposits, now upgraded to AAA by CRISIL, signify a sturdy core of the franchise."

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

“Steady operating profits and moderate provisions (credit cost at 30bps) kept Federal Bank’s profitability strong with a return on assets (RoA) at 1.28%. Ahead, we expect the bank to deliver high-teen growth and generate a sustainable 1.2% RoA," the brokerage said in its analysis.

Anand Rathi's analysis highlighted that the asset quality remains stable, with slippages recorded at Rs 4.3 billion, which is 0.8% of loans—better than anticipated. The firm forecasts loan growth to remain in the high teens, particularly driven by strong retail and SME growthAgra Investment. “We have factored in ~18% credit growth for FY25-27, largely driven by strong traction in the retail portfolio,” they added.

Valuation-wise, Anand Rathi has set a target price (TP) of Rs 242, based on a sum-of-parts valuation. They noted, "Our TP comes from a 1.3x FY27e adjusted book value, indicating a favorable outlook for the bank."

Given the bank's strong earnings and positive growth projections, investors may find Federal Bank an attractive addition to their portfolios.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

Jaipur Investment