Federal Bank Ltd. share price target

Federal Bank has reported decent numbers on most of the parameters. Earnings are 12% ahead of our expectations, on the back of lower provisions. Driven by lower slippages, GNPA has improved by 22bps sequentially to 2.9%. Credit growth is robust at 20%, driven by retail, which has grown by 25%. NIMs were stable at 3.2%. Core fee income has grown by 21%. Opex grew by 14% with C/I ratio improving 290bps YoY to 50%. Credit cost has dropped by 72bps YoY to 51bps. We largely retain our numbers on...

The operational performance came in healthy at 28% YoY to | 755 crore, led by higher other income at | 412 crore (31% YoY) and improvement in operating leverage with CI ratio at ~50%. Margins remained steady at 3.17%, supported by lower slippages during the quarter. Lower provision at...

Refer to important disclosures at the end of this report Strong results; renewed focus on retail to drive profitable growth Federal Bank reported strong set of results in Q4FY19. The bank's profitability stood strong at Rs3.8bn and exit RoA at 1%. Federal Bank saw a reasonable improvement in its asset quality (GNPA down 22bps qoq to 2.9%) during the quarter. Loan growth moderated to 20% yoy from a 25% trajectory due to its conscious run-down in short-term corporate credit. It guides for 22-23% growth in FY20 with incremental focus...

Slippages declined by 40% QoQ to Rs 256 cr, driven by meaningful decline in SME slippages and NIL slippages in corporate segment. SME slippages fell from Rs 192 cr to Rs 97 cr QoQ. GNPAs/NNPAs declined both in absolute and percentage terms to...

where not only its operational net interest income (NII) growth was healthy, but notably, its asset quality improved on a q-o-q and y-o-y basis in percentage as well as in absolute terms. NII grew by 17.5% y-o-y to Rs. 1,096 crore. Moreover, non-interest income increased smartly by 31% y-o-y and 19% q-o-q to Rs. 411 crore, where core fee income grew by 21% y-o-y to Rs. 289...

We have upgraded our FY20/21E ABVs by 1/3% to factor in an improvement in asset quality. With RoAAs of 1.05%, we believe the stock is fairly valued at 1.3x FY21E ABV. We maintain that a consistent performance across parameters is essential for an upgrade of multiples (and recommendation). FB has struggled on this crucial front, in sharp contrast with comparable peers. We remain skeptical despite the good 4QFY19 show. Despite FBs sharp asset quality improvement in 4QFY19, we maintain our NEUTRAL rating (TP Rs 98, 1.3x FY21E ABV of Rs 75.5). We are not yet confident that FB can meaningfully deliver > 1% RoAA over FY20-21E.

improvement in return ratios from higher productivity, NIMs and maintained credit cost. Deliquencies risks from recent deterioration in certain exposures may deteriorate asset quality (though small), while risk from Agri/SME is still under the woods for the system but the Bank has been able to restrict deliquencies and showcase better recoveries improving the asset quality. We...

5 May 2019 4QFY19 PAT of INR3.8b (8% ahead of our estimates) was led by controlled provisions of INR1.8b (7% QoQ decline). PPoP increased 28% YoY to INR7.5b (in line). PPoP grew 20.6% YoY while PAT rose 42% YoY to INR12.4b. NII stood at INR10.9b (+17.5% YoY), which, coupled with 31.1% YoY growth in other income, drove 20.9% YoY growth in total revenues. NIM remained flat sequentially at 3.17%.

Under leadership of Mr. Shyam Srinivasan heading since FY10, the bank has embarked on its journey to transform into a pan India bank. While the bank remains in a dominant position in Kerala, incremental growth will be driven from Non-Kerala geographies. Asset quality challenges are behind and bank is well placed to capitalize on likely economic recovery. Credit growth momentum is expected to continue, with tilt towards higher yielding segments. We are factoring next two years CAGR loan...

Slippages coming down: Slippages in Q3FY19 dipped sequentially (~Rs 440cr, 1.69% vs. 1.98% QoQ) led by lower corporate and retail slippages. However, the disappointing rise in SME slippages (~Rs 192cr) continued. The slippage guidance for FY19 at ~Rs 1550bn is very optimistic.