Axis Securities maintains bullish stance on Federal Bank

After the company reported its earnings for the quarter ended December 2021, Axis Securities maintained its bullish stance on the private sector lender Federal Bank, part of Big Bull's portfolio.

The stock was valued at Rs 100.33 per cent higher than the previous close of Rs 95.85 on the BSE. It has gained for the last two trading sessions and has risen 9 per cent during the same period.

The share price is higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages, with a market value of more than 21,000 crore.

For the third quarter ended December 2021, Federal Bank posted a 29 per cent increase in net profit at Rs 522 crore. The profit was 404.10 in the year-ago period.

The Net Interest Income NII stood at Rs 1,538. In December 2021, 90 crore were up 7.09 per cent from Rs. There was 1437.04 crore in December 2020. Gross non-performing assets were NPAs increased to 3.06 per cent of the total advances during the quarter, compared to 2.71 per cent at the end of the third quarter of 2020 -- 21.

In October-December 2021, the bank's net NPAs increased to 1.05 per cent of the total assets, compared to 0.60 per cent a year ago.

Axis Securities stated that Federal Bank Q 3 FY 22 performance was marked by lower provisions, improved recoveries and upgrades, pick-up in Net Interest Margin NIM healthy fee income, and loan growth. After tax PAT growth of 29 13 per cent YoY QoQ to Rs 521 crore, the ROA expansion was increased to 1 per cent.

While reducing the book's collection efficiency is 96 per cent, 98 per cent of it is secured with a collection efficiency of 96 per cent. NII growth has barely slowed down to 7.1 per cent despite the NIM improvement. The slippage ratio of 1.3 per cent remains manageable, it said.

The brokerage house pointed out that Federal Bank has taken a cautious approach in building the loan mix toward high-rated corporates and retail loans. The bank has a liability franchise that is strong with CASA plus Retail TD of 90 per cent and one of the highest LCR among banks.

The bank has managed asset quality well despite the pandemic. Adequate CAR, liability franchise and incremental lending to better-rated borrowers are some positives that are key to the business mix. Management intends to take a calibrated approach when growing these segments, because of the new focus segments such as the MFI, CV portfolio, and credit cards.

We have revised loan growth estimates upward and built-in lower credit costs over FY 22 -- FY 23 E. We keep a BUY with a target price of Rs 125 1.3 x FY 23 E ABV, according to the brokerage house.

At the end of September, Ace investor Rakesh Jhunjhunwala held a 2.64 per cent stake or 5,47, 21,060 shares in the bank. He has a 1.01 per cent joint holding with his wife in the bank.