Zerodha-Backed Private Bank Stock Recovers 5 per cent from Weekly Low Despite Weak Q3 Earnings

A Brief Review of Q3FY25 Results: Weak Quarter, But Long-Term Growth Intact

On January 27, 2025, Federal Bank, a leading Mid-Cap private lender, announced its Q3FY25 earnings for the December 2024 quarter. The bank reported a weak performance, with muted sequential growth in deposits and advances, along with a decline in profit after tax due to higher provisions. This led to negative investor sentiment, causing the stock to close 3.68 per cent lower at Rs 184.10 on NSE on January 28, 2025. However, during the week, the stock rebounded 5 per cent from its low, reflecting investors’ confidence in the bank’s long-term prospects.

Q3FY25 Performance Overview

• Total Income: Increased 2.25 per cent QoQ and 17.19 per cent YoY to Rs 8,196.02 crore.
• Net Profit: Declined 14.10 per cent QoQ and 10.77 per cent YoY to Rs 948.70 crore due to higher provisions.
• Asset Quality: Slippages rose 14.7 per cent QoQ, but strong recoveries and upgrades helped improve the GNPA ratio by 14 bps to 1.95 per cent, while the net NPA ratio declined 8 bps to 0.49 per cent.
• Net Interest Income (NII): Increased 15 per cent YoY to Rs 2,431 crore, though net interest margin (NIM) remained largely flat at 3.11 per cent.
• Advances & Deposits: Net advances grew 15 per cent YoY and 1 per cent QoQ to Rs 2,30,370 crore, while total deposits rose 11 per cent YoY to Rs 2,66,375 crore but declined 1 per cent QoQ.
• CASA Growth: Average CASA grew 11 per cent YoY, with a CASA ratio of 30.16 per cent.

Why Investors Maintain Faith in Federal Bank

Despite a weak quarter, several factors support the bank’s long-term growth trajectory:

• Strategic Shift in Focus: The bank is prioritizing average CASA, quality deposits, and fixed-rate lending to drive sustainable growth.
• Strong Asset Quality: Asset quality is at its best in a decade, minimizing risks and strengthening investor confidence.
• Healthy Profitability Metrics: With a Return on Equity (RoE) of 14.8 per cent and Return on Assets (RoA) of 1.35 per cent, the bank’s current valuations remain reasonable.
• Robust Commercial Banking Growth: The segment saw a solid 5.65 per cent QoQ and 24.5 per cent YoY increase, indicating strong business momentum.
• Network Expansion & Deposit Mobilization: The bank is leveraging its extensive network to boost deposits and CASA, reinforcing its financial position.

Key Investors

According to the December 2024 shareholding pattern, Zerodha Broking holds a 1.03 per cent stake in Federal Bank, while Rekha Rakesh Jhunjhunwala owns 1.42 per cent, reflecting continued institutional interest in the stock.

Stock Performance and Investor Sentiment

Following the weak Q3 results, Federal Bank’s stock initially declined but rebounded as investors focused on long-term growth. As of January 31, 2025, the stock closed at Rs 187.21 on NSE, gaining 0.48 per cent over the week and recovering from a low of Rs 178.09. 

The bank’s strategic focus on quality deposits, strong asset quality, and commercial banking momentum make it a compelling investment for long-term investors. Despite short-term challenges, investor confidence remains strong, as evidenced by the stock’s recovery from recent lows.