Federal Bank stock undervalued despite strong platform and leadership change

On Monday, Nomura/Instinet maintained a positive outlook on Federal Bank Ltd (FB:IN) stock, reiterating a Buy rating with a price target of INR240.00. The firm’s endorsement comes as Federal Bank welcomes its new Managing Director & CEO, Mr. KVS Manian, who previously served as the Joint Managing Director at Kotak Mahindra Bank (KMB).

According to the analyst, Federal Bank presents a compelling investment opportunity, citing its robust deposit franchise and strong asset quality, which they believe is currently undervalued in the market.

The analyst highlighted that Mr. Manian’s previous experience at KMB, where he was instrumental in developing low-risk, high-return on assets (RoA) businesses, will be beneficial for enhancing Federal Bank’s RoA profile.

The analyst’s confidence in Federal Bank is further bolstered by the bank’s financial projections. Federal Bank is trading at 1.2 times its forecasted FY26 book value and 9 times its forecasted FY26 earnings, which the analyst finds attractive. Among private sector banks, excluding Bandhan Bank, Federal Bank is noted for offering the highest earnings yield, making it a top pick in the mid-cap bank category.

The reiteration of the Buy rating and the INR240.00 price target reflect the firm’s view that Federal Bank’s stock has significant growth potential. The unchanged target price suggests that the analyst firm sees continued strength in the bank’s fundamentals and market position.

Investors and market watchers will be keeping an eye on Federal Bank’s performance under the new leadership of Mr. Manian, as well as the bank’s ability to capitalize on its strong asset quality and deposit franchise to deliver on the growth and valuation expectations set forth by Nomura/Instinet.

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