Federal Bank shares in focus post Q2 results. Should you buy, sell, or hold?

Private sector lender Federal Bank shares will be in focus on Tuesday after the bank posted an 11% increase in net profit to Rs 1,057 crore in the September quarter. The lender had earned a net profit of Rs 954 crore in the year-ago period.

Federal Bank said in a regulatory filing that its total income increased to Rs 7,541 crore during the quarter under review, up from Rs 6,186 crore in the same quarter last year.

The bank reported an interest income of Rs 6,577 crore during the quarter, higher than Rs 5,455 crore in the same period a year earlier.

Net interest income (NII) grew 15% to Rs 2,367 crore compared to Rs 2,056 crore in the same quarter a year ago.

As regards asset quality, the bank witnessed improvement with gross non-performing assets (NPAs) declining to 2.09% of the gross loans by the end of September 2024 from 2.26% a year ago. Similarly, net NPAs, or bad loans, moderated to 0.57% from 0.64% at the end of the second quarter of the previous fiscal year.

Should you buy or sell Federal Bank’s stock? Here’s what analysts say:

Nuvama

Nuvama maintained a “Buy” rating on Federal Bank, setting a target price of Rs 235.The bank’s performance has shown an in-line profit after tax (PAT) with strong asset quality. While loan growth remains robust, deposit growth has slowed slightly, though the Liquidity Coverage Ratio (LCR) has improved. Federal Bank has recently begun co-lending in the microfinance institution (MFI) sector, though this remains a small part of its operations. Management is optimistic about sustaining healthy asset quality within its MFI portfolio.

Nomura

Nomura maintained a “Buy” rating on Federal Bank, setting a target price of Rs 240.

The brokerage highlights the lender as its top midcap bank pick, citing healthy asset quality despite a challenging environment. The bank has shown robust loan growth and stable quarter-on-quarter NIMs. Nomura also notes NIM expansion, supported by improvements in the Current Account Savings Account (CASA) ratio and an increase in the Loan-to-Deposit Ratio (LDR).

IIFL

IIFL has upgraded its rating on Federal Bank to “Add” from “Reduce,” with a revised target price of Rs 180, up from Rs 170.

The brokerage notes robust business growth, stable NIMs, and healthy fee income with stable asset quality. Additionally, IIFL anticipates that the new CEO will introduce a fresh strategy in the upcoming quarter. However, it believes that the bank’s Return on Assets (ROAs) has peaked at 1.3% and expects it to decline to 1.1% by FY26.