Federal Bank Ltd. share price target

NII rose to Rs. 980.06 Cr in Q1FY19 compared to Rs. 933.22 Cr in Q4FY18. Federal Bank Ltd Q1FY19 results Comment

Federal Bank, for Q1FY19, reported decent set of numbers with net interest income growing 22.4% YoY. Pre-provisioning profit grew at a slower pace of 8.1% due to 118bps YoY increase in cost-income ratio (CI%) at 51.8% vs. 50.6% in the corresponding quarter last year. Net profit grew 25.0% to Rs263 crore led by a 15.8% decline in provisions & contingencies. Asset quality, at the end of the quarter, remained stable with gross non-performing assets (NPAs) unchanged at 3.00%. Net NPA increased 3bps QoQ to 1.72%, on lower provisioning. View: Post FY18, the stock of Federal Bank had corrected ~11% (since our last...

Maintain NEUTRAL with a TP of Rs 103 (1.5x FY20E ABV of Rs 69). After several asset quality stumbles, FBs 2% slippage in 1QFY19 was a mild surprise. Higher write-offs capped GNPAs at 3%, even as slippage was not exactly inspiring (incl. relapse of ~Rs 1.63bn). Other metrics were heartening (book growth +23.6% YoY, stable NIMs at 3.12% and opex down ~2% QoQ, despite the one time gratuity hit of Rs 536mn). Ex-tax provisions fell 46.4% QoQ as FB utilised RBIs relaxation on MTM provisioning (deferred a hit of Rs 442mn) and incurred lower credit cost, leading to a massive 43% earnings beat.

Interest income grew by 15% and reflected 22% growth in NII led by strong loan growth coupled with stable NIM PAT increased by strong 25% in Q1FY19 due to lower provisioning YoY. Stable GNPA ratio at 3%/ and NNPA ratio slightly increased by 3bps to 1.72% in Q1FY19 against 1.69% in Q4FY18. Loan book grew by 24% YoY with the strong growth across Retail, SME and Corporate segments, while deposits grew by 16% YoY....

ICICI Securities Ltd | Retail Equity Research Absolute slippages moderated from | 872 crore and were at | 461 crore coming back to the ~| 400 crore trend seen in the past. Also, | 163 crore slippages from standard restructured book led to corporate slippages of | 207 crore. FY18 GNPA was at | 2868 crore vs. | 2796 crore QoQ. GNPA ratio was stable at 3%. NNPA ratio rose to 1.72% Owing to relatively better asset quality, provisions declined significantly from | 372 crore to | 199 crore in Q1FY19. Lower...

Federal Bank has delivered a healthy performance on all major metrics in 1QFY19 led by, (a) healthy NII growth (+22.5% YoY +5% QoQ); (b) strong growth in loan book to Rs943bn (+23.6% YoY and 2.5% QoQ); (c) QoQ improvement in C/I ratio to 51.8% vs. 52.8% in 4QFY18; (d) lower fresh slippages of Rs4.6bn vs. Rs8.7bn in 4QFY18 and (d) highest ever upgrade and recovery of Rs2.5bn vs. Rs2.4bn in 4QFY18 and Rs980mn in 1QFY18. The Bank's overall stress assets book...

Federal Bank reported a strong quarter in 1QFY19, with PAT at INR 2.63bn (+8% above JMFe). The beat in net profit was primarily driven by strong NII growth (+22% YoY), as margins held up for FB. Credit cost was contained at 80bps for FB in 1QFY19, as slippages almost halved sequentially to 2.3% (annualised). Net stress on FB's loan book (net NPA + other stress) is now at 2% of loans (from 2.3% as of 4QFY18). Management remains confident of containing slippages at INR 11-12bn in FY19E, with credit costs in the range of 65-70bps. Furthermore, FB is positive on its margin outlook, and expects this, along with the containment of credit cost will help it deliver 1% exit RoA by 4QFY19. We remain cautious...

17 July 2018 FB reported PPoP growth of 2.4%/8.1% QoQ/YoY to INR6b (in-line), as the 3%beat on NII (+5%/+22% QoQ/YoY to INR9.8b) was offset by the other income (-14%/-18% QoQ/YoY to INR2.7b). Lower-than-expected provisions of INR1.9b (-46%/-16% QoQ/YoY) led to PAT of INR2.6b (5% beat). NIM was flat at 3.12% (+1bp QoQ). Yields declined marginally (-2bp) to 9.11%, while cost of deposits declined to 5.64% (-12bp QoQ). Loan growth of 2.5%/24% QoQ/YoY was led by 31% YoY growth in corporate book, while retail and SME loans also maintained healthy traction (+19%/+17% YoY).

Downgrade to NEUTRAL. Our target multiple is cut to 1.5x on FY20E ABV of Rs 68, leading to a TP of Rs 102. Repeated slips in asset quality (often at variance with commentary and initiatives) force us to downgrade FB. Slippages doubled QoQ (~Rs 8.9bn) as the RBI circular led to an accretion of ~Rs 4.5bn. While loan growth (+25% YoY in 4QFY18) was laudable, core earnings were dented (~5% miss) by interest reversals. Moderately higher opex (despite gratuity), robust core fees (+18% QoQ) and steady CASA helped, but only a bit, as profits fell 44% YoY.

Federal Bank has reported the highest ever fresh slippages of Rs8.7bn (+117% QoQ and +266% YoY) in 4QFY18, led by accelerated NPA recognition of Rs4.9bn from loan under different restructuring schemes of the RBI. Resultantly, its provisioning expenses spiked by 203% YoY and 129% QoQ to Rs3.7bn. Further, sharp rise in slippages led to higher interest reversal for which the Bank witnessed marginal decline in NII (-1.8% QoQ) and NIM (-22bps QoQ). Thus, the Bank reported muted growth in pre-provisioning profit (+7.2% YoY and 4.8% QoQ), which along with higher provisioning led to 43.5% YoY and 44.2% QoQ decline in reported PAT to Rs1.5bn. Advances grew by 25.4% YoY and 8.2% QoQ to Rs920bn, as SME, Wholesale and Retail...

ICICI Securities Ltd | Retail Equity Research Accelerated recognition of stressed assets on account of a revised framework led to a rise in slippages to | 872 crore vs. ~| 300-400 crore range earlier. Absolute GNPA increased 29% QoQ to | 2796 crore with ~50 bps QoQ rise in GNPA ratio at 3% Exposure of ~| 487 crore slipped from standard restructured book, which declined to | 792 crore in Q4FY18 from | 1425 crore in Q3FY18. As per the management, ~| 451 crore of these slippages...

where high slippages (primarily due to RBI's revised norms) eclipsed other performance parameters. FEDBK saw its net interest income (NII) increasing by 10.8% y-o-y to Rs. 933.2 crore. Non-interest income (OI) increased by 11.4% y-o-y to Rs. 314 crore, wherein fee income growth stood at 12.3% y-o-y. High slippages impacted net interest income, thus affecting net interest...

Federal Bank (FB) recorded PPoP growth of 5%/7% QoQ/YoY (to INR5.9b; 10% miss), as 7% beat on other income (+37%/+11% QoQ/YoY to INR3.1b) was offset by 6% miss on opex (+7%/+15% QoQ/YoY to INR6.6b) due to additional INR179m of gratuity provisions. Core PPoP growth was healthy at 6%/14% QoQ/YoY. Elevated provisions at INR3.7b (driven by high slippages) led to PAT of INR1.45b. NII growth came in at -2%/+11% QoQ/YoY (5% miss), as NIM shrunk to 3.11% (-22bp QoQ), driven by a 41bp QoQ decline in yield on advances.

Assets quality remains weaken but probability of lower slippage going forward provides comfort: Slippage ratio increased by 60 bps to 2.1% in Q3FY18 v/s 1.6% in Q2FY18 due to higher slippage from retail (Rs1,500 mn) and corporate (Rs980 mn). Retail segment which is considered as less risky, higher slippage from this segment is really worrisome for bank, but it was mainly due to the education loans in the Kerala state owing to state govt's launched Rs9,000 mn scheme in May'2017. Educational loan slippage can be attributed to the Kerala government which stated that it will make good 40% of loan default quantum in...

Loan growth continued to be strong at 22%YoY accompanied by stable CASA (~33%). FB saw slippages from both corporate & retail, with retail being led by one?off slippages from educational loans leading to slight deterioration in asset quality. Other income was impacted by lower treasury income.

The bank's top-line performance was up as net interest income increased by 20% to Rs 950 crs compared to Rs 791 crs YoY & Rs 899 crs QoQ. Other income de-grew by 17% to Rs 229 crs YoY. C/I ratio for the bank dropped to 52.37% vs. 55.48% YoY and increased sequentially from 50.83%. NIM's stood steady at 3.33% vs. 3.32% in...

Maintain BUY with a TP of Rs 138 (2x Dec-19 ABV of Rs 69). Asset quality mishaps dragged FBs 3Q performance, even as the bank continues to deliver on most operational metrics. Core earnings (+20%) were in line with estimates led by stable NIM (3.33%) and sustained loan growth. Controlled cost escalation (+7% YoY), healthy fee growth (22%) and a drop in provisions (-8% QoQ) led to a net earnings beat (7%). CASA ratio was steady at ~33%, despite the higher base.

We believe that the Bank will continue to deliver further improvement in operational performance led by improving loan book growth and improving assets liability mix. Further, continued moderation in SMA-2 balance clearly suggests fresh slippage will show declining trend in FY19. Notably, the Bank is gradually coming out of the scenario marked with higher provisioning and continued stress on asset quality for last few quarters. Looking ahead, we expect the strong traction in earnings to continue owing to robust growth in loan book, moderate credit cost and healthy margins. We have introduced estimates for FY20E and expect the Bank's earnings to witness 33% CAGR through FY17-20E. We reiterate our BUY recommendation on the...

FB recorded PPoP growth of -4%/18% QoQ/YoY (INR5.6b; 4% miss), driven by a5% miss on total income (24% beat on other income, which declined 20%/13% QoQ/YoY to INR2.29b). The impact, however, was partly offset by a 5% beat on opex, which grew 2%/4% QoQ/YoY to INR6.2b, as employee expenses fell4%/6% QoQ/YoY. Core PPoP growth was strong at 5%/37% QoQ/YoY. NII growth came in at 6%/20% QoQ/YoY (1% beat), aided by 22% YoY loan growth and a stable NIM of 3.33% (+2bp QoQ). Other income fell 20%/13% QoQ/YoY, driven by sharp moderation in treasury gains (-61%/-66% QoQ/YoY). Loan growth of 5%/22% QoQ/YoY was driven by corporate book growth of30% YoY. Retail/agri and SME loans also maintained strong traction (up 18%and 20% YoY, respectively)

Federal Bank is one of the largest private sector banks in South-India and has set on a transformational journey to become a new generation bank with focus on SME & Retail lending.. Over the last 3 years, the bank has strategically expanded its operations outside the home state of Kerala