Private sector lender Federal Bank posted a 54% rise in its profit at ₹804 crore in the third quarter ended December 2022 (Q3FY23), on higher net interest income and improved asset quality. The bank had posted a net profit of ₹522 crore in the same quarter a year ago.

The bank’s net Interest Income (NII), the difference between interest earned and expended, for the quarter grew by over 27% to ₹1,957 crore from 1,539 crore in the year ago quarter. Federal Bank reported a strong quarter – third in a row. Given Federal’s notable RoA expansion in 9MFY23E, analysts at Edelweiss are confident the bank can deliver strong earnings and RoA ahead.

The brokerage house has reiterated ‘Buy’, rating Federal Bank shares a top mid-cap pick as it believes Federal is set to deliver a higher RoA of 1.4% through FY25E versus average RoA of 0.9% over the last five years. With a de-risked book, fintech partnerships gaining traction and market share acquisition in loans, Edelweiss expects the bank to deliver strong EPS CAGR of 28% over FY22–25E. The brokerage’s target price on the bank stock stands revised to ₹180 per share (from ₹160).

Federal Bank has maintained strong asset quality performance, demonstrated its ability to gradually improve contribution of fee income, and its willingness to invest in technology and partnerships to build profitable businesses augurs well for the bank from a medium term perspective. We revise our earnings estimate by 2%–5% for FY23–25E respectively and maintain BUY with a revised target price of ₹170 (from ₹160 earlier),” said Antique Stock Broking.

“Strong fees YoY at 32%, low net slippage ratio of 36 bps, and reduction in restructured loans completed the all-round performance. Deposit growth improved 6.5% QoQ (15% YoY) and CASA ratio declined 217 bps QoQ to 34%. While pressure on NIM would increase, as lag impact of deposit re-pricing plays out, despite which we upgrade our earnings by 5%/ 4%/ 2% for FY23/ FY24E/ FY25E respectively and expect the bank to deliver RoA of +1.2%,” the note stated.