Nomura calls Federal Bank an undervalued franchise, projects 25% upside in 12 months

Nomura expects the lender to deliver a 22% Compounded Annual Growth Rate (CAGR) in its Pre-Provisioning Operating Profit over financial year 2024 - 2026.

Federal Bank MD & CEO Shyam Srinivasan, who has been at the help since 2010 will be moving on in September 2024 and Nomura believes that the move will be a key near-term monitorable for the stock going forward.

"However, the second level of the management should be up to the task," Nomura wrote in its note.

The brokerage is valuing Federal Bank at 1.2 times December-2025 Price-to-book-value, with its subsidiaries contributing 8 per share.

A Federal Bank unit, Fedbank Financial Services listed on the bourses last week. FedFina's 600 crore IPO was a fresh issue of equity shares.

"We are seeing green shoots in some areas, so I would think, in the next four to six months, so there are some element of what the elections will play out, but certainly in calendar year 2024, you can see the animal spirits back in a big way. India seems to be an island of excellence in a sort of a slowing world. So for every good reason, there's going to be momentum, and I am hoping that we will see it all in 2024, early or later part of 2024," Srinivasan told CNBC-TV18 at the 19th edition of the India Business Leader Awards (IBLA) on December 2.

Shares of Federal Bank are trading 2.5% higher on Monday at 152.45.