Bank stock jumps after board approves acquisition of ₹98 Cr worth of shares in AFLIC

The shares of the prominent bank gained up to 1.5 percent after the Board approved the execution of the Memorandum of Understanding to acquire 3,20,00,000 equity shares of Ageas Federal Life Insurance Company Limited. 

Price Movement 

With a market capitalization of Rs 47,841.56 crore, the shares of Federal Bank Ltd were trading at Rs 194.90 per share, increasing around 0.48 percent as compared to the previous closing price of Rs 194.70 apiece. 

Reason For Rise 

The shares of Federal Bank Ltd have seen a positive movement after the Board approved the execution of a binding Memorandum of Understanding with Ageas Insurance International NV (Ageas) and Ageas Federal Life Insurance Company (AFLIC) for the acquisition of a 4 percent equity stake by the bank in AFLIC, from Ageas. After the acquisition of the 4 percent stake, the 

bank’s stake in AFLIC will increase from 30 percent to 26 percent. This acquisition is valued at Rs 97.44 crore. Additionally, a Foreign Institution Investor, Integrated Core Strategies (Asia) Pte bought 9.8 lakh shares in the bank at an average price of Rs 195.8 per share, from UBS AG. 

Financial condition 

Analyzing the company’s financial performance, revenue zoomed by 19 percent from Rs 6,085 crore in Q3FY24 to Rs 7,265 crore in Q3FY25, during the same time, net profit shrunk by 10 percent from Rs 1,067 crore to Rs 951 crore. 

It has a P/E ratio of 11.8, compared to the industry’s P/E ratio of 10.7, indicating that the stock is trading at a higher price, and the stock is overvalued. Additionally, the company’s debt-to-equity ratio stands at 9.27. 

Also read: 5 Stocks to benefit as India imposes anti-dumping duty on few Chinese imported products

Brokerage recommendation 

Recently, Citi Research, one of the well-known brokerages globally, gave a ‘Buy’ call on the Bank stock with a target price of Rs 242 apiece, indicating a potential upside of 24 percent from Wednesday’s price of Rs 194 per share. 

Rational 

As per brokerage, Federal Bank’s new CEO, KVS Manian, unveiled the “Breakthrough Phase” strategy to modernize and position the bank among top private lenders with a universal banking vision. With valuations at 1.1x FY27E book, the focus is on boosting profitability, optimizing deposit costs, reshaping the product mix, and enhancing fee income.

Asset Management 

Federal Bank is cautiously expanding unsecured lending, awaiting credit cost stabilization. Home loans grew 9 percent YoY, auto loans 25 percent YoY, and commercial banking 24.5 percent YoY. Gold loans surged 30 percent YoY but face potential impact from RBI guidelines. The bank is shifting from floating to fixed-rate models. 

Future Outlook 

Federal Bank’s “Breakthrough Phase” strategy aims for 1.5x system loan growth while building a sustainable, high-quality franchise. The focus is on optimizing deposit costs, reshaping the product mix, and enhancing fees. Management plans to leverage distribution networks to boost CASA and deposits through a qualitative approach. 

Company Profile 

The Federal Bank Limited (the Bank) is a banking company. The Bank is engaged in providing banking and financial services, including retail banking, corporate banking, foreign exchange business, and treasury operations. It operates through three segments: Treasury, Corporate/Wholesale Banking, and Retail Banking. 

Written by Abhishek Singh

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