Mover and Shaker of Indian Equities, Goldman Sachs has set a target of Rs 130 on Federal Bank with the following note,
Federal Bank (FED) stock performance has been lackluster over the last 12- months largely due to concerns on profitability, asset quality and macro factors. FED is currently trading at c.1x FY16E adj. book which would imply either: 1) c.20% additional hit on adjusted BVPS; or 2) lower asset growth by 413bps vs. base case and lower ROA at 1.1% over FY14E-20E. These scenarios appear exaggerated as we expect: 1) asset quality concerns to wane and stressed loans to decline to 6.2% by FY16E from 10% in FY14E; 2) loan book to grow at 18% CAGR driven by retail/SME. We reiterate Buy on its improving profitability and top quartile earnings growth, and expect FED to trade at 1.4x FY16E adj. book.
Goldman expects an EPS of rs 11.72 from federal Ban in FY 2015. Thus in our view a target of Rs 120 is fair.
