Federal Bank Ltd. share price target

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.

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)