While the Indian stock market faced heavy losses during Monday's trading session on January 19, Federal Bank shares bucked the trend. The stock maintained its positive momentum for the second consecutive day, climbing another 3% in early trade. It reached an intraday high of ₹277.90 on the National Stock Exchange (NSE).
Brokerages Bullish on Federal Bank's Performance
This rally followed the bank's December quarter results, which surpassed analyst expectations. Several leading brokerages expressed optimism, leading to revised price targets and ratings.
Analyst Upgrades and Revised Targets
JM Financial highlighted a strong quarterly performance for the third quarter of FY26. The bank reported a 9% year-on-year and quarter-on-quarter growth in Profit After Tax (PAT). This was driven by healthy Net Interest Income (NII) growth, an improvement in asset quality, and a significant rise in core fee income. Consequently, JM Financial upgraded its rating to 'Add' and raised the share price target to ₹290.
Centrum Broking also praised the bank's robust showing. It noted healthy growth across both assets and liabilities, alongside a recovery in Net Interest Margins (NIMs). The brokerage attributed margin improvement to better Loan-to-Deposit Ratio (LDR), effective use of balance-sheet liquidity, and a favorable asset mix with more medium-yield assets. Centrum upgraded its valuation and set a new target price of ₹305.
Motilal Oswal stated that Federal Bank delivered a robust quarter, outperforming market expectations on key metrics. It pointed out that NIMs exceeded forecasts, supported by a lower cost of funds and better growth in medium-yield segments. Motilal Oswal retained its 'Buy' rating with a target price of ₹310.
Detailed Look at Q3 FY2025 Results
The bank's financial performance for the December quarter provided a solid foundation for the positive sentiment.
Profit and Income
Federal Bank's net profit for Q3 stood at ₹1,041.21 crore, marking a 9% increase compared to the same period last year. This growth was supported by stronger core income and operating leverage. The Net Interest Income (NII) rose to ₹881 crore from ₹869 crore in the corresponding quarter of the previous fiscal year.
Margins and Operating Performance
The Net Interest Margin (NIM) expanded by 12 basis points quarter-on-quarter to reach 3.18%. This improvement was backed by a better liability mix and asset repricing. On the operational front, the bank's pre-provision operating profit increased to ₹1,729 crore from ₹1,559 crore year-on-year, reflecting a growth of 10.2%.
Asset Quality Strengthens
Asset quality showed notable improvement. The gross Non-Performing Assets (NPAs) declined by 23 basis points year-on-year to 1.72%. Net NPAs fell by 7 basis points to 0.42%. Both metrics reached their lowest levels in a decade. Slippages also improved, dropping to ₹443 crore in Q3 from ₹584 crore in the previous quarter.
However, overall provisions, excluding tax, increased to ₹332 crore during the quarter, up from ₹292 crore a year ago.
Brokerage Outlook and Earnings Forecast
Looking ahead, brokerages project a strong earnings trajectory for Federal Bank. Centrum Broking estimates a 25% earnings Compound Annual Growth Rate (CAGR) over FY26 to FY28. This is expected to be led by stable NIMs, improving Cost-to-Income ratio (CTI), and sustained asset quality.
JM Financial expects the bank's structurally stronger balance sheet and granular deposit base to support earnings resilience. It estimates Return on Assets (RoA) and Return on Equity (RoE) of 1.1% and 11.7%, respectively, for FY26-27.
Motilal Oswal raised its PAT estimates for FY26 and FY27 by 2.5% and 2.3%, respectively. This revision factors in NIM expansion and better loan growth, partially offset by slightly higher provisions. The brokerage estimates Federal Bank will deliver an RoA of 1.26% and RoE of 12.2% for FY27.
Disclaimer: This story is for educational purposes only. The views and recommendations are those of individual analysts or broking companies. Investors are advised to consult certified experts before making any investment decisions.
