Federal Bank Ltd. share price target

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...

Federal Bankis a Private Sector, scheduled commercial bank in India, headquartered inKochi.

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.

Federal Bank reported a decline in its credit growth at 13% YoY (vs 15% Q2FY20) due to settlement (Air India exposure Rs.2bn) and write off of accounts (~Rs.3bn). Net Interest Income grew by 7% YoY led by decline in NIMs, while PAT grew by 32% YoY due to corporate tax rate cut benefit and lower provisions (down 15% YoY). Operating profit grew by 5% YoY driven by a 18% growth in Non-Interest Income. GNPA% improved to 2.99% vs 3.07% however slippages remain elevated. NIMs remain stable sequentially at 3.0%, while cost to income ratio improved by 106bps QoQ to 52.4%. We revise down...

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...

Rs5.93bn led from two lumpy known corporate accounts. The core performance momentum has slowed down as macro economic growth factors continue to affect this bank as well similar to peers, but lowered slippage rate in non-corporate if continues can be key driver of overall asset...

20 January 2020 FB reported moderation in business growth due to the weak environment and higher repayments/stress account resolutions. Although slippages stood elevated, bulk of it came from the pre-disclosed watch-list, which resulted in an overall decline in stressed assets. We tweak our estimates marginally for FY21/22 and believe that the bank remains well positioned to deliver a continued improvement in RoA led by margin/cost improvements. Maintain PAT of INR4.4b (+32% YoY) came in higher than our estimate of INR3.9b as provisions were lower at INR1.6b (-36% QoQ) aided by lower charge on debit card loyalty points. NII growth moderated to 7% YoY (INR11.5b), affected by interest reversals of INR0.2b, while margins stood stable at 3%. PPoP stood at INR7.4b (+5% YoY). C/I ratio declined ~100bp QoQ to 52.4%. Loan growth moderated to 13% YoY, led by sluggish trends in corporate/commercial banking, while retail loans continued growing strongly at 23% YoY.

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Q2FY20 was a modest quarter for FB in terms of loan growth, NIM and asset quality. Other income and retail book growth provided support. Disappointment was largely on higher slippages at Rs 540cr mainly on higher corporate slippages skewed by one account of Rs 180cr to large group