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Federal Bank – Buy

 

CMP: Rs. 238

  FV: Rs. 265

  Support:  230/225

  Resistance: 245/265

 

Federal Bank has emerged as one of the most stable and consistent mid-tier private sector banks, balancing growth, profitability, and prudence amid a volatile macro environment. Its franchise is geographically diversified across South and West India, with a strong Non-Resident Indian (NRI) customer base — a segment that contributes significantly to low-cost deposits. Over the past few years, the bank has transitioned from a regionally focused lender to a more diversified player with improving digital adoption, stable asset quality, and enhanced balance-sheet granularity.

 

 

In recent quarters, growth momentum has moderated to around high single digits as the management recalibrates toward higher-yielding segments. The retail book remains the core, led by housing, gold loans, and small business banking, while the corporate book is selectively expanding in quality-rated accounts. The loan mix continues to evolve, with notable traction in commercial vehicle/construction equipment finance and gold loans, offsetting slower trends in mortgages. Deposits remain a key strength; CASA ratio improved to over 31 per cent, supported by healthy NRE deposit inflows and growing resident savings balances, reflecting the bank’s strong liability franchise.

 

Profitability has shown resilience. Despite slower credit growth, Federal delivered a sequential expansion in NIM (around 3.06 per cent) on account of easing cost of funds and better asset repricing. Fee income growth has been impressive, led by record para-banking and transaction-based fees, helping offset pressure on spreads. Cost-to-income remains contained near 54 per cent, with credit cost steady at around 50 bps and decadal-low GNPA of 1.83 per cent ; underscoring the bank’s strong underwriting standards and recovery mechanisms.

 

A key recent development is the proposed preferential issue of warrants to Blackstone’s Asia II Topco XIII, which, upon conversion, will lift CET-1 by nearly 280 bps to ~17 per cent. This capital infusion is effectively “growth capital” which would strengthen the balance sheet and position Federal to pursue the next leg of expansion.

 

With improving operating metrics, a strengthened capital position, stable margins, and high governance credibility, Federal Bank appears well-placed to bridge its valuation discount to peers. The ongoing strategic shift toward higher-quality growth and steady profitability improvement underpins our constructive long-term view on the stock.

Supreme Industries – Add 

CMP: Rs. 3920

  FV: Rs. 4400

  Support:  3800/3650

  Resistance: 4050/4200

 

Supreme Industries Ltd (SIL), founded in 1942, is one of India’s most established and diversified plastic product manufacturers, holding a leading position in the domestic plastic piping industry with strong brand recognition. The company operates through four major business verticals — plastic piping systems, packaging products, industrial products and consumer products— catering to a wide range of end markets, including agriculture, infrastructure, housing, packaged foods, potable water supply, sanitation, consumer durables, horticulture, and floriculture.

 

SIL is strategically positioned to capitalise on the robust demand in real estate and infrastructure, driven by government initiatives such as Affordable Housing, Jal Jeevan Mission, Sanitation, and City Gas Distribution projects. Its strong growth trajectory, consistent cash generation, diversified product portfolio, and healthy return ratios (RoCE) underpin a positive long-term outlook. Over recent years, SIL has consistently outperformed the overall plastic piping industry, and management aims to sustain this momentum. 

In Q2FY26, the company’s performance was mixed — revenues grew 5.3 per cent Y-o-Y, but Ebitda and PAT declined by 6.8 per cent and 20.3 per cent, respectively, due to margin pressure. The Ebitda margin contracted by 160 bps Y-o-Y to 12.4 per cent, falling short of estimates. This was largely attributed to price discounts during the monsoon season, lower realisations due to fall in polymer prices & cheaper PVC imports, and higher fixed costs following the Wavin acquisition. Despite pricing headwinds, SIL achieved robust 17.2 per cent Y-o-Y volume growth in its plastic piping segment, surpassing our expectations.

  Management remains optimistic about recovery in demand in H2FY26, supported by a pick-up in housing activity and rural demand following a favorable monsoon. Additionally, the potential imposition of anti-dumping duties on PVC resin imports could increase domestic PVC prices by Rs4–5/kg, thereby improving margins and encouraging channel restocking. The company has reiterated its FY26 Ebitda margin guidance of 14.5–15 per cent.

  SIL expects steady polymer prices and improved demand to support strong performance in H2FY26. It has guided for 15–17 per cent volume growth in plastic piping and overall volume growth of 12–14 per cent for FY26, targeting revenues of Rs11,000–11,500 crore. The company has planned a capital expenditure of Rs1,300 crore in FY26 (Rs869 crore spent in H1), including Rs310 crore toward acquisitions, which will enhance capacity to ~10 lakh tonnes in plastic piping and ~12 lakh tonnes overall by FY26-end. Entirely funded through internal accruals, SIL maintains a debt-free balance sheet with healthy cash reserves. With PVC prices near cyclical lows and improving demand visibility, SIL’s long-term fundamentals remain robust.

 

(Disclaimer: Shrikant Chouhan is the head of equity research at Kotak Securities. Views expressed are his own.)