Nomura has maintained a ‘Buy’ rating on Federal Bank but cut its target price to ₹220 from ₹225, following a mixed set of Q4FY25 results that showed margin compression and elevated operating expenses.
The bank posted a 13.7% YoY increase in net profit to ₹1,030.2 crore, with NII rising 8.3% YoY to ₹2,377.4 crore. Asset quality improved sequentially, with gross NPA falling to ₹4,375.5 crore from ₹4,553.3 crore and the gross NPA ratio improving to 1.84% from 1.95%. Net NPA declined to ₹1,040.4 crore, bringing the net NPA ratio down to 0.44% from 0.49%.
However, Nomura flagged concerns over the near-term NIM outlook, projecting moderation of 17bps in FY26F and 9bps in FY27F, to 2.9% and 3.1%, respectively. The brokerage attributed this to rising competitive intensity and higher funding costs. It also reduced loan CAGR assumptions from 17.5% to 15% for FY25–27 and trimmed its EPS estimates by 8–10% for FY26–27.
Nomura believes while fundamentals remain intact, investors may need to reset return expectations amid the current interest rate cycle and cost pressures.
Disclaimer: The above views are those of the brokerage and not the publication. Investors are advised to consult a certified financial advisor before making any investment decisions.
