Target: ₹175

CMP: ₹133.25

Federal Bank hosted an analyst day to showcase its growing capabilities and a larger roadmap in its medium-term journey to emerge as a top-tier bank. Even as it fortifies its existing moats on the deposit side of the balance sheet (best-in-class granularity with retail deposit mix at around 90 per cent), the bank is aiming to judiciously improve the mix of high-yielding businesses (7 per cent of loans), especially on the back of its maturing FinTech partnerships in the areas of credit cards, personal loans and MFI loans.

Federal Bank continues to maintain a strong remittance market share (over 20 per cent), while also constantly building a stronger value proposition for its flagship non-resident customers (wider product bouquet driving greater stickiness).

Federal Bank appears to be on track to deliver its targeted RoA of 1.25 per cent for FY23 with a further 5-10 bps RoA accretion over the next couple of years, driven by higher risk-adjusted margins and better productivity.

Through consistent brick-by-brick execution, Federal Bank has emerged as the best-in-class among mid-sized banks with a visible pathway to emerge as a top-tier bank in the medium term. We marginally tweak our FY23/FY24 earnings estimates to adjust for higher risk-adjusted margins and better operating leverage).