Target: ₹253
CMP: ₹234.80
Federal Bank hosted the call on its strategic capital-raising initiative (₹6,200 crore) through a preferential issue of warrants to Blackstone-managed funds. Bank would issue up to about 27.3 crore warrants which converts into 1 equity share (face value ₹2) via preferential allotment at ₹227/share. Warrants must be exercised within 18 months of allotment with 25 per cent of the price is paid upfront at subscription (Q4-FY26).
On full conversion, Blackstone would hold 9.99 per cent of the paid-up equity; no change in control envisaged. Blackstone gets a right to nominate one non-executive, non-independent director, only if all warrants are exercised and it maintains equal or more than 5 per cent shareholding. Appointment remains subject to RBI “fit & proper”, NRC, Board, and shareholder approvals.
As per the management, this premium issue pricing signals confidence and conviction to their growth strategy from a marquee long term institutional investor.
We assign a higher multiple (mean + 1 SD) for Federal Bank, supported by its improved growth visibility, recent capital raise at 1.2x one-year forward ABV, and the strategic partnership with Blackstone, which together enhance both growth and franchise credibility. Consequently, we have slightly raised our loan growth forecast to about 15 per cent (from 13.5 per cent earlier) and revised our target price upward to ₹253 per share (earlier ₹210).