The share price of Federal Bank rallied over 7 percent after the bank reported better than expected earnings in the first quarter of fiscal 2021.

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The stock gained as much as 7.72 percent to Rs 53.70 per share on the BSE. However, it pared gains, trading 6.92 percent higher at Rs 53.30 apiece at 10 am.

Federal Bank reported a 4.3 percent rise in net profit to Rs 400.77 crore in Q1FY21 as against Rs 384.2 crore in the year-ago period. CNBC-TV18 analysts’ poll had estimated the net profit at Rs 295.8 crore.

Net interest income rose 12.3 percent to Rs 1,296.4 crore from Rs 1,154.2 crore, YoY. NII was higher than estimates of Rs 1,242.6 crore.

Net interest margin was at 3.07 percent as compared to 3.04 percent, QoQ, and 3.15 percent, YoY.

On the asset quality front, the gross non-performing assets (NPA) ratio stood at 2.96 percent as against 2.84 percent while the net NPA ratio fell to 1.22 percent from 1.31 percent, QoQ.

Provisions and contingencies spiked to Rs 394.62 crore in Q1FY21 from Rs 192.04 crore in Q1FY20. The bank said that the aggregate provision against the likely impact of COVID-19, including the RBI mandated provision, as of June 30, 2020, stands at Rs 186.30 crore.

The provision coverage ratio was at 75.1 percent versus 72.5 percent, QoQ.

Citi maintained 'Buy' rating on the stock with a target price of Rs 70 per share. Citi said that the liability traction of the bank remains strong, which should support net interest margins. However, slippage from moratorium is the key to watch out for. The brokerage raised FY21-22 earnings estimates by 1-2 percent.

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