Federal Bank is an old private sector bank with a history that dates back to the pre-independence era. The bank has a dominant presence in Southern India especially in Kerala. Under leadership of Mr. Shyam Srinivasan (since FY10), the bank has embarked on its journey to transform into a pan India bank. While the bank has a dominant position in Kerala, incremental growth will be driven from Non-Kerala geographies. Strong capitalization levels and a robust liability franchise will enable market share gains in both corporate and retail segments. Legacy asset quality challenges were behind prior to pandemic but second wave has led to higher bad debts which should get normalised soon. The bank is well placed to capitalize on likely economic recovery post covid 19 pandemic and strong operating profits should more than cover spike in credit costs. Given attractive valuations, we have an overweight rating on the stock – 26-07-2021 Price: 87.25 Rating: Over Weight Recommendation: Buy
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