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Emkay Global
Federal Bank (Buy)
Target: ₹110
CMP: ₹85.15
Federal Bank is transforming itself into a next-gen private bank via its neo-banking tie-ups across assets, liabilities, and payments businesses. This should not only help the bank thrive in the new era of banking, but also reduce the incremental cost of business and garner better fees/revenues in the long run.
The bank’s retail portfolio has traditionally been dominated by secured mortgages and gold loans. However, it has now diversified into higher-margin CV, MFI, PL and Card businesses, which should drive up NIMs and thus RoA will ber greater than 1 per cent (otherwise been a key irritant) in the long run. The three-year extension of the MD & CEO term provides management stability (missing among peers) and strategic continuity. The bank's NBFC unit Fedfina has built a healthy loan book (over ₹4,700 crore) and could potentially see value unwinding as it gains scale.
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