The 47 reports from 16 analysts offering long term price targets
for Federal Bank Ltd. have an average target of 77.93. The consensus estimate
represents an upside of 64.58%
from the last price of 47.35.
Maintain BUY with a TP of Rs 62. A strong liability franchise and valuations underpin our stance. FBs 4QFY20 PAT was below estimates due to higher opex and provisions. Weve cut our earnings to factor in (1) NIM compression as the fall in yields is likely to outstrip any CoF reduction given the significant proportion of floating rate loans and (2) higher provisions, given low PCR and extrinsic factors. Depressed RoAEs in the near term with a gradual recovery cause us to assign a measly multiple (0.8x).
Federal Bank's asset quality remains stable if we factor in for standstill benefits; GNPA% improved to 2.84% vs 2.99% as slippages declined sequentially due to extension of standstill benefits (amounting to Rs.3.03bn). Credit growth declined to 11% YoY (vs 13% Q3FY20) due to cautious approach and loss of business in last 2 weeks of March quarter. Net Interest Income grew by 11% YoY led by decline in NIMs, while PAT declined by 21% YoY due to higher provisions (up 220% YoY; Rs930mn Covid-19). Operating profit grew by 28% YoY driven by a 73% growth in Non-Interest Income. NIMs remain stable sequentially at 3.0%, while cost to income ratio improved by...
Liability side intact; bulk of provisions to come subsequently BUY Federal Bank (FBL) reported robust operational performance for the quarter with reported NII and operating profit coming ahead of our estimates. The key underlying reason for such a performance was exceptional treasury gains of Rs2.76bn. Adjusted for this gain and the employee benefit provisions, our operating profit estimate was marginally higher. Reported NIM was stable sequentially at 3.04% (+4bps QoQ) but down 13bps from last year. Margin was supported by 10bps reduction in cost of deposits, which has been a trend since 1QFY20. The liability profile remains rich with granular deposits accounting for 87% of the total base. Deposit flows have been strong even...
Operating performance of Federal Bank (FB) was higher than expectations on account of higher treasury gains. Loan growth moderated to 11% YoY, led by sluggish growth in corporate/SME, while retail loans grew 19% YoY.
FB posted a largely in-line set of earnings at Rs3.0bn (PLe: Rs2.82bn) and core PPOP of Rs5.9bn (PLe: Rs6.1bn). Overall PPOP was boosted by strong trading profits and used it to make higher provisions for overdue accounts, COVID impact on certain sectors and improve PCR with benefit of lower slippages from moratorium standstill. Bank also had to provide acturial employee benefits of Rs1.2bn owing to drop in yields. Adjusting to COVID, core performance would have been undeterred but seems slippgaes run rate...
Federal Bank reported a mixed set of Q4FY20 numbers wherein the operational performance was healthy due to other income one offs but a surge in provisioning dented PAT growth. As on May 25, 2020, 35% of borrowers by value opted for the moratorium with retail customers comprising a majority. Total provisioning for the quarter was at | 567 crore (~46 bps of advances), which includes Covid-19 provisioning of | 93 crore (RBI requirement of | 30.3 crore). The bank has reported Covid-19 impact on loss of revenues and recoveries to the extent...
Federal Bank (FB) posted strong results for Q4FY2020 with in-line topline growth, but treasury gains helped offset the steep rise in provisions. In addition, sequentially improved asset quality (GNPAs down by 8BPS) is a positive. During the quarter, FB saw NII of Rs. 1,216 crore, up 10.9% y-o-y, which was in line with expectations. However, non-interest income grew to Rs. 711 crore, up 72.7% y-o-y, driven by higher investment/treasury gains of Rs. 369 crore in Q4FY2020 (was Rs. 65 crore in Q3). Higher other income (OI) partially helped cushion the impact of the steep rise in provisions, which at Rs. 567 crore (including COVID-19 related...
The COVID-19led lockdown is a significant event impacting the Indian as well as the global economy. The resultant lockdown is expected to cause simultaneous weakening of consumer demand and a slowdown across sectors. Initial signs indicate that the Coronavirus outbreak may result in higher delinquencies and lower credit offtake for banking, financial services and insurance (BFSI) companies, including Federal Bank.Federal Bank has a 51% wholesale book, mainly comprising business banking and SME/MSME segment which are expected to see COVID-19 related impact on their business and cash-flows. Hence we expect Federal Bank's...
Federal Bank Ltd is a Indian commercial bank in the private sector headquartered in Kerala having 1,276 branches and 1,937 ATM/ Recyclers and a loan book size of ~Rs1,20,862cr. Due to Covid 19 pandemic we expect banks advances to fall by 4% in FY21E and recover in FY22E compared to previous estimates. Low interest rate regime and fall in credit growth could hurt NIM in Q1FY21. However, bank's plan to increase its ROA to 1.25% by...
Attractive valuations underpin our stance our BUY rating with a TP of Rs 112 (1.3x FY22E ABV). The continuation of the incumbent CEO is a monitorable. At FBs recent analyst day, like with most banks, the focus was on technology, growth (in high yielding segments) and the way for RoAA improvement. Certain aspects of the strategy and guidance presented appear achievable. We too continue to expect an improvement in return ratios at the bank (albeit slower vs. guidance).
We attended the Analyst Day 2020 organized by Federal Bank. The bank continues to stick to its RoA guidance of 1.25% by FY21, the strategy for which is seemingly well-defined and encompasses a number of levers such as improving credit-to-deposit ratio (C/D ratio), enhancing margins, improving fee income traction, cost control and reducing credit costs. Aim is to improve RoA by 25-30bps in the coming 2-3 years by executing on each of the above. The bank boasts of 91% retail deposit ratio and efforts are being made on a continuous basis to ensure a very granular liability profile. A heightened focus on RMs coupled with cross-sell of complementary products such as cash management services, supply chain finance, etc., is a sound strategy to capture customers' wallet and mind share....
At its 2020 Analyst Day, Federal Bank (FB) provided updates on the operations/business segments and ROA roadmap for next 2-3 years. Segments covered included Wholesale Banking, Credit Risk Management, Treasury, Transaction Banking, Credit Underwriting, Retail among others.
26 February 2020 FB has been looking for sustainable loan growth with a strong focus on growing the retail book at 25% YoY while consciously slowing down in the wholesale segment due to the current challenging environment. It reiterated that there is no residual stress in corporate accounts above INR1b, mainly led by the higher focus on working capital loans and cash flow-based lending, which resulted in lower stress on the incremental portfolio. Further, the bank expects the mid-corporate segment to grow at a higher pace compared to large corporate lending. Federal Bank FB has reported a sharp decline in net stressed loans to ~1.6% of average assets from 3.4% in FY15. It thus expects corporate slippages to moderate significantly and cash recovery trends to remain strong. Also, retail/agri/business banking trends are improving for last few quarters, and thus NPAs in retail assets have improved to 1.8% from 2.
FB hosted an analyst day showcasing its capabilities across product segments and laying the path ahead for the bank. FB rewinded back in time to show incrementally bank has been taking much higher market share across liability & asset segments with stress levels much below industry levels. Bank had earmarked a path to come back to +1% ROA mark which has been able to reach with operating leverage. Going ahead in next 2-3 years target of 1.25% ROA will be led by increasing share in high yielding assets, no large escalation in opex and maintained credit cost of 60bps. In our view...
30 January 2020 FB reported a sharp decline in net stressed loans to INR27b (~2.3% of loans v/s 4.0% in 3QFY18). It indicated that there is no residual stress in corporate accounts above INR1b. Also, retail/agri/ business banking are showing improving trends for the last two quarters. Overall, FB maintains a healthy coverage ratio of 66.2% (incl. TWO), which will facilitate controlled credit costs. credit cost of ~62bp over FY20-22. Loan growth moderated to 13% YoY, led by sluggish trends in corporate/commercial banking and repayments/write-offs in some large-value accounts. However, retail loans continued growing strongly at 23% YoY. Within retail, the housing and mortgage segments grew robustly by 21% and 28% YoY, respectively. Overall, we believe that FB is taking a cautious approach in building the loan mix toward high-rated corporate and secured retail loan portfolio. We thus estimate loan growth CAGR of 17% over FY20-22.
FB's operating performance was lacklustre on various fronts i.e. growth, NIMs, fees and oplev. While the headline slippages were higher, the silver lining was these were largely driven by known-stress in the corp book, and granular slippages were contained. At 1.1xFY22E ABV, valuations are cheap and at a considerable discount to some of its peers'. We watch for the sustainability of current asset quality trends. Updates on the extension of the incumbent MD&CEO's term will be watched for. FBs (PPOP) was in line with our estimates, while lower than expected provisions resulted in an earnings beat. Headline stress was stable as the impact of higher slippages (from known stress, lumpy) was offset by higher WOs. With a TP of Rs 122 (1.5x Dec-21 ABV of Rs 82), we maintain BUY.
Improving Prospects; Challenges on NIM and PCR Remain Despite weak growth trends and higher corporate slippages, Federal Bank reported 32% YoY growth in PAT 3QFY20, partly benefitting from lower tax rates even as PBT was in-line with expectations. Annualised slippages at 2.2% was mainly led by higher corporate slippages. However, GNPA ratios declined by 8bps QoQ to 3.0% owing to higher write-offs. Loan growth moderated to 13% YoY against 15% in 2QFY20. Growth would have been ~15%, after adjusting for corporate slippages/loan settlements. Growth in fee income moderated to 11% YoY led by decline in TP distribution fee and forex gains over previous year. Margins at 3% continued to...
