Federal Bank shares: Private sector lender Federal Bank shares rose in morning trade on July 20 after the bank launched a qualified institutional placement (QIP) issue and fixed the floor price at Rs 132.59 per share.
At 10.25 am, shares of Federal Bank were trading 1.18 per cent up at Rs 137.30 on the BSE.
In a regulatory filing post market hours on July 19, Federal Bank said the credit, investment and raising capital committee of its board of directors has “authorised the opening of the issue today, i.e., July 19, 2023”.
In May, it was reported that Federal Bank planned to raise approximately Rs 4,000 crore through a combination of QIP and preferential allotment.
The pricing formula arrived at by the committee is Rs 132.59 per equity share, with a provision to offer a discount of up to 5 per cent on the floor price. The floor price of Rs 132.59 represents a discount of around 2 per cent compared to the current market price. On July 19, the bank’s stock settled at Rs 135.70 on the BSE, marking a 0.67 per cent increase from the previous closing price.
The capital infusion aims to support the bank’s retail growth and inorganic activity. Federal Bank received a Rs 916-crore equity infusion from the International Finance Corporation (IFC), the investment arm of the World Bank, in July 2021. However, it remains uncertain if IFC would participate in case the preferential allotment route is adopted by the bank.
The capital infusion aims to support the bank’s retail growth and inorganic activity.
CEO Shyam Srinivasan in an interview with Bloomberg in May 2023 said that the bank planned to raise to $486 million in the next few months to facilitate its expansion. The funds could be raised through debt or equity, or a combination of both. The capital would be used to support growth in retail banking, including the opening of approximately 100 branches this year, as well as potential acquisitions in the microfinance sector.
What Do Analysts Say About Federal Bank Stock?
Brokerage firm Motilal Oswal Financial Services maintained a buy call on the stock with a target price of Rs 155, implying a 22 per cent upside potential.
Business growth, though, was healthy, led by traction across segments. The liability franchise remained strong, with a retail deposit mix at about 85 per cent and the CASA (current account and savings account) ratio at about 31.9 per cent. The asset quality ratio remained stable, although the slippages came in a tad higher, said Motilal Oswal.
“We broadly maintain our estimates as controlled credit costs and healthy other income compensated for a slight moderation in NII growth. We estimate Federal Bank to deliver RoA (return on assets) and RoE (return on equity) of 1.3 per cent and 15.8 per cent, respectively, in FY25,” Motilal Oswal said.
Brokerage firm Prabhudas Lilladher also maintained a buy call on the stock and raised the target price to Rs 175 from Rs 170, implying a 38 per cent upside in the stock from the current level.
Gaurav Jani, Research Analyst at Prabhudas Lilladher expects Federal Bank’s credit growth of 18 per cent YoY in FY24E. While NIM for Q1FY24 declined by 11bps QoQ to 3.3 per cent due to back-ended loan growth and pricing pressures, Prabhudas Lilladher believes margins could expand in Q2FY24 as yields have risen since the last 45 days.
“For FY24 we are factoring a NIM decline of 14bps to 3.1 per cent. However, NII and NIM estimates could be upgraded if Federal Bank raises capital. Shareholder approval for fundraising is to the tune of Rs 4,000 crore. The credit cost environment remains benign and we raise FY24 and FY25 PAT estimates by 4.5 per cent and 2.5 per cent respectively due to lower provisions,” said Prabhudas Lilladher.
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