Federal Bank Ltd. share price target

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....

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.

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...

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...

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.

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...

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.