Bank stock to buy now for an upside potential of 35%; Do you own it?

India’s private sector banking comprises 21 banks, with total deposits reaching ₹75,61,502 crore as of March 2024. These banks have seen significant growth, contributing substantially to the country’s financial landscape with robust market capitalization and expanding branch networks across the nation. 

Price movement 

With a market capitalization of Rs 44,266.09 crore, the shares of Federal Bank were trading at Rs 180.35 per share, decreasing around 0.39 percent as compared to the previous closing of Rs 181.05 apiece. 

Brokerage recommendation 

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 34 percent from Tuesday’s price of Rs 179 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. 

Also read: Financially strong auto stock to buy now for an upside of more than 50%; Do you own it?

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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