Analysts bullish on Federal Bank after new CEO unveils plan for growth

Private banking company Federal Bank shares were buzzing in trade on Monday, February 24, 2025, in an overall weak market. The Federal Bank shares popped 2.03 per cent to hit an intraday high of Rs 183.35 per share.

 

The uptick in share price came after the Federal Bank, in an analyst meeting, said that it has set its sights on becoming one of the top five private banks in the country. Under the leadership of its new managing director and CEO, KVS Manian, the bank unveiled an ambitious roadmap, showcasing its strategic vision for the future. This prompted several brokerages to adopt a more positive outlook on the Federal Bank stock.

 

Strategic vision and growth path

 

With a legacy of over 93 years and a strong presence in Kerala, analysts believe, Federal Bank is now positioning itself to be a more comprehensive bank, stressing upon growth, profitability, and technological advancement.

 

"Our aim is to deliver balanced growth with superior profitability while leveraging the power of technology and digitalisation," the bank stated.

 

The bank’s strategy focuses on prudently scaling its operations by prioritising higher-yielding loans, enhancing its liability franchise, and capitalising on digital capabilities. Analysts noted that Federal Bank aims to leverage these elements to propel its growth trajectory and boost its return on assets (RoA) and return on equity (RoE) over the next few years.

 

Key initiatives for growth

 

Federal Bank's strategy revolves around twelve key themes that will be important in boosting its profitability and market positioning. A major aspect of the plan is improving the share of Current Accounts (CA) by 4 per cent, which is expected to bring down the cost of funds, a critical driver for return on assets. 

 

The bank also plans to expand its product offerings, focusing on wealth management, affordable housing, used commercial vehicles (CVs), and tractors, as well as increasing its footprint in the Micro, Small, and Medium Enterprises (MSME) and mass-affluent segments.

 

In line with this, the bank will also focus on cost efficiencies, even as it accelerates investments in digital platforms, products, and physical distribution networks. 

 

“We will be launching new products targeting specific customer needs while improving operational efficiencies across the bank,” the bank said.

 

Brokerages bullish on Federal Bank’s growth prospects

 

Brokerages have been optimistic about Federal Bank’s growth potential. Motilal Oswal has maintained its ‘Buy’ rating with a target price (TP) of Rs 225, citing the bank’s focus on balanced growth and superior profitability. According to Motilal Oswal, Federal Bank is set to deliver an earnings compound annual growth rate (CAGR) of 19 per cent over FY25-27, with a return on assets (RoA) and return on equity (RoE) of 1.3 per cent and 14.6 per cent, respectively, by FY27.

 

Nuvama has also recommended a ‘Buy’ rating with a target price of Rs 215. They are particularly bullish on the bank’s long-term strategy, highlighting that the Federal Bank’s plan to grow at 1.5x nominal GDP growth is a strong indicator of its aspirations. They believe that successful execution of this strategy will likely lead to a re-rating of the stock.

 

ICICI Securities, while positive on the bank’s long-term outlook, has given an ‘Add’ rating, pointing to near-term weakness in the bank’s Net Interest Margins (NIM) and RoA. ICICI Securities has also reduced the target to Rs 205, from Rs 210.

 

"The new CEO has laid out an ambitious and detailed strategy that includes improving cost of funds, boosting fees, and growing the loan book by focusing on higher-yielding assets,” said ICICI Securities. However, they caution that some of the initiatives may take time to yield results.

 

According to reports, IIFL has upgraded Federal Bank to a ‘Buy’ rating with a revised target price of Rs 218, up from Rs 185 earlier, citing an attractive risk-reward scenario following a 17 per cent correction in the bank's stock price. They believe that even partial delivery of the bank's aggressive growth targets would lead to a major re-rating of the stock.

 

Meanwhile, Citi reportedly has set a target price of Rs 242, citing the ‘Breakthrough Phase’ strategy outlined by Manian. Citi views the bank’s focus on boosting profitability and repositioning itself as a universal bank as key drivers of long-term success. 

 

Analysts at Citi further said that valuations at 1.1x FY27E book appear reasonable, making this an attractive investment opportunity.

 

Challenges and the path forward

 

While the bank’s growth strategy has garnered considerable optimism, there are challenges ahead. Analysts said that Federal Bank needs to navigate uncertainties around loan and deposit growth, particularly with the focus on growing medium-yielding loans and improving fee-based income. 

 

Additionally, with an aspiration to be among the top private sector banks, the execution of this strategy will require strong cohesion and alignment within the management team.

 

That said, Federal Bank’s strategic vision under KVS Manian aims to transform it into a more comprehensive, tech-savvy, and profitable institution. With a solid plan for scaling its operations and enhancing profitability, the bank is set to take major steps toward realising its ambitious goal of becoming one of India’s top five private banks. 

 

Also, the positive outlook from brokerages suggests that the market sees considerable growth potential in Federal Bank, with many anticipating a re-rating of the stock in the near future.