Axis Securities has reiterated its positive stance on Federal Bank Ltd, maintaining a ‘BUY’ rating with a target price of Rs 240. This recommendation suggests an upside potential of approximately 22 percent from the current market price (CMP) of Rs 197.25. The analysis is part of the Axis Annual Analysis, where the brokerage firm reviewed Federal Bank’s FY25 annual report and its strategic roadmap.
Federal Bank’s performance in FY25 was marked by significant strategic transitions under ‘Project Breakthrough,’ aimed at elevating the bank’s status among top-tier financial institutions, the brokerage said.
The bank achieved credit growth of 12 percent year-on-year, with notable increases in Loan Against Property (LAP), Gold Finance, and Commercial Banking. Additionally, a strategic shift towards mid-yielding secured segments helped maintain net interest margins at 3.13 percent, it added.
The bank’s financial resilience was further evidenced by a 14 percent year-on-year growth in Net Interest Income (NII) and a substantial 23 percent rise in non-interest income. Operating expenses also saw a controlled rise, resulting in a stable cost-to-income ratio of 54 percent.
Axis said that Federal Bank’s asset quality remained strong, with Gross and Net Non-Performing Asset (GNPA/NNPA) ratios improving significantly from the previous year. This improvement reflects the bank’s disciplined underwriting and controlled slippages, which stood at 0.8 percent.
Federal Bank has expanded its market presence by adding 85 new branches, focusing on deepening its presence in Southern markets and enhancing its position in high-growth regions in the West, North, and Northeast. The bank’s robust capital adequacy ratio (CRAR/Tier I) at 16.4 percent/15.0 percent provides it with ample room for expansion.
With a diversified portfolio and a strong liability franchise, Federal Bank stands out for its superior risk management and strategic fintech collaborations. These partnerships aim to boost deposit mobilization and business growth, a crucial advantage in the increasingly competitive financial landscape. Axis Securities said that the bank’s initiatives are well-aligned with its long-term growth objectives, providing a solid foundation for sustained expansion.
The bank’s future growth is anchored in expanding mid and high-yielding segments to sustain credit growth and enhancing fintech partnerships to foster deposit and lending capabilities. Additionally, disciplined risk management and cost optimization efforts are expected to enhance profitability and return on assets (RoA). These strategies are essential for maintaining the bank’s competitive edge and ensuring robust financial performance.
Axis Securities expects Federal Bank’s return on assets (RoA) and return on equity (RoE) to improve to 1.3-1.4 percent and 13-15 percent, respectively, over the fiscal years 2027-2028.This forecast is underpinned by risk-adjusted credit growth, portfolio mix optimization, and CASA-led deposit traction. Federal Bank’s strong fundamentals and proactive management position it well to deliver consistent shareholder value.