At a Glance
Federal Bank has grown its profits at 21% CAGR over 5 years, slashed GNPA to under 2%, and steadily expanded across India. But despite all this, the market treats it like an underperforming PSU. Is the valuation gap an opportunity or a trap?
🏛️ TL;DR
- Stock up 34% in 5 years (but underperformed most private peers)
- Net profit up 4.9x from FY20 to FY25
- GNPA down from 3.4% to 1.84%, among the cleanest in the business
- Book Value: ₹141, Current Price: ₹205, P/B: ~1.45x
- ROE: 13%, NIM: 3.13%, CRAR: 16.4%
- Fair Value Range: ₹190 to ₹240
📈 The Growth Story: Slow Roast, Not Instant Coffee
Federal Bank didn’t throw capital at every fintech buzzword. Instead, it did boring banking:
| Year | Revenue (₹ Cr) | Net Profit (₹ Cr) | ROE (%) | GNPA (%) |
|---|---|---|---|---|
| FY20 | 13,590 | 1,590 | 11 | 3.41 |
| FY21 | 14,314 | 1,680 | 11 | 3.41 |
| FY22 | 14,382 | 1,996 | 11 | 2.78 |
| FY23 | 17,812 | 3,210 | 15 | 2.35 |
| FY24 | 23,565 | 3,964 | 15 | 2.11 |
| FY25 | 28,106 | 4,234 | 13 | 1.84 |
- Net Profit 5-Year CAGR: 21.3%
- EPS grew from ₹7.9 to ₹16.9
- Loan book, CASA, and footprint all expanded conservatively.
💳 Valuation: Discounted for Dignity
Federal Bank trades at:
- P/E: 12.1x
- P/B: 1.45x
Compare this with:
- HDFC Bank P/B: ~3.1x
- ICICI Bank P/B: ~3.0x
- IDBI Bank P/B: 1.6x
- Yes Bank: 😂
Despite being more profitable (ROE > 13%) and cleaner than many peers, Federal Bank gets no love.
🎓 Fair Value Range: P/B Based Estimate
Assuming book value (FY25) = ₹141
- Base Case: 1.4x × 141 = ₹197
- Bull Case: 1.6x × 141 = ₹226
- Premium Case: 1.7x × 141 = ₹239.7
🌐 EduInvesting Fair Value Range: ₹190 – ₹240
Even at ₹240, it’s still cheaper than most banks in this league.
🚀 Risks: Why So Undervalued?
- High contingent liabilities: ₹1.09 lakh crore (!)
- Low interest coverage
- Dividend payout just 7%, despite healthy profits
- Interest capitalisation concern noted by analysts
- FIIs haven’t shown massive confidence (stable ~26% holding)
- Despite 50,000+ Cr market cap, still tagged as “mid-tier”
👩💼 KMP & Management
- MD & CEO: Shyam Srinivasan (since 2010)
- Known for steering the bank conservatively but consistently
- Transformation from regional Kerala-centric to pan-India bank
Management is admired for:
- Risk controls
- Tight NPA discipline
- But also criticized for under-leveraging growth
💡 Final Verdict: Underhyped. Undervalued. Understood?
Federal Bank isn’t flashy. It doesn’t have a PayZapp or PhonePe.
But:
- It’s fundamentally clean, reasonably priced, and consistently profitable.
- The valuation discount seems more like a perception issue than a performance issue.
- For long-term investors looking beyond memes and fintech froth, Federal might be the best private bank no one’s talking about.
Tags: Federal Bank, Private Banks, Kerala Bank, PSU Discount, GNPA, EduInvesting, Bank Valuation, ROE, NIM, CASA
✍️ Written by Prashant | 🗓️ June 18, 2025
