Federal Bank shares crack 5% as analysts cut target; should you sell?

Federal Bank shares fell 5 per cent after analysts trimmed their target prices as it reported a net profit decline in Q1 FY26

Shares of Federal Bank fell over 5 per cent on Monday after analysts trimmed their target prices following a weak performance in the first quarter of the current financial year (Q1 FY26). 

 

The lender's stock fell as much as 5.59 per cent during the day to ₹185.1 per share, the biggest intraday fall since January 28 this year. The stock pared losses to trade 0.9 per cent lower at ₹194.3 apiece, compared to a 0.37 per cent advance in Nifty 50 as of 9:35 AM. 

 

Shares of the company fell for the eighth straight session, down nearly 10 per cent in the process. The stock currently trades at 30 times the average 30-day trading volume, according to Bloomberg. The counter has fallen 2.3 per cent this year, compared to a 4.2 per cent advance in the benchmark Nifty 50. Federal Bank has a total market capitalisation of ₹48,004.91 crore.   Track LIVE Stock Market Updates Here

 

Federal Bank Q1 results 

The bank reported a net profit of ₹862 crore, down 15 per cent year-on-year (Y-o-Y), in Q1FY26. The decline in profit was primarily due to higher provisions resulting from increased slippages in the agriculture and microfinance segments. In Q1FY25, the bank’s net profit stood at ₹1,010 crore. Sequentially, the profit fell 16 per cent from ₹1,030 crore. 

 

Net interest income, the difference between interest earned and interest expended, grew by a mere 2 per cent to ₹2,337 crore during the quarter, while non-interest income was up 22 per cent to ₹1,113 crore.

 

Provisions of the bank increased 41 per cent Y-o-Y in Q1FY26 to ₹695 crore. It increased 60 per cent sequentially from ₹435 crore in Q4FY25. Gross slippages for the bank in Q1FY26 increased to ₹658 crore as opposed to ₹417 crore in Q1FY25.  

Analysts on Federal Bank Q1 earnings

Antique Stock Broking on Federal Bank noted that the lender reported weak loan growth, driven by softness in both retail and corporate credit. Net interest margins are expected to decline by 5-10 basis points and bottom out in the second quarter, the brokerage said. 

 

It has lowered their growth estimates and built in higher margin pressure and elevated credit costs, resulting in a +0.4 per cent/-4 per cent revision to their FY26/FY27 estimates. Since the new chief executive officer's arrival in September 2024, management has launched strategic initiatives to improve return on assets (RoA) over 2-3 years by strengthening the liability franchise, enhancing asset mix, and boosting productivity.

 

While multiple re-rating hinges on the successful execution of these initiatives, the bank currently trades at a reasonable valuation multiple, Antique Stock Broking said. The brokerage revised the target price to ₹240 (from ₹250 earlier), and maintained 'Buy'. 

 

Systematix Institutional Equities said that the net interest margin is lower sequentially, but is expected to bottom out next quarter. The gross slippages rose during the quarter, driven by stress in agri microfinance, commercial vehicle/construction equipment (CV/CE), and business banking segments.    

The brokerage revised estimates to reflect the asset quality trends and growth outlook. It lowered the target price to ₹235 (from ₹250), while maintaining a 'Buy' rating.

 

Nuvama Institutional Equities said that Federal Bank's credit costs are expected to remain elevated in the second quarter before declining. They cut FY26 and FY27 EPS estimates by 11 per cent each and lowered the target price to ₹225 (from ₹230 earlier), while maintaining 'Buy' rating on the stock. However, for Nuvama, Federal Bank remains the safest mid-sized bank with strong growth potential.