Motilal Oswal keeps Federal Bank at Buy with Rs 385 target after profit beat

what happened

Motilal Oswal, in a research note published by Moneycontrol, reports that Federal Bank earned INR 13.9 billion in net profit in the second quarter of FY27. That is up 45% year on year and 18% quarter on quarter, and about 10% above forecasts. The gain was driven mainly by higher other income and lower-than-expected provisions. Higher operating costs, including a one-time INR 0.33 billion charge from a change in ESOP accounting, partly offset it.

Net interest income rose 26% year on year to INR 31.5 billion, in line with expectations. Net interest margin narrowed by 1 basis point quarter on quarter to 3.32%, above the brokerage's 3.18% estimate. The analysts adjusted their FY27 and FY28 profit forecasts and expect FY27 return on assets of 1.30% and return on equity of 12.4%. They reiterated Buy with a target price of INR 385, based on 1.9 times FY28 adjusted book value.

why it matters

The quarter points to steady earnings growth at a mid-sized Indian private lender. Bank investors usually watch margins and provisions closely. Here margins were nearly flat and credit costs came in below expectations, which supports the overall picture.

market impact

Indian banks: stronger profit and lower provisions support sector sentiment and Federal Bank shares

tags

instruments