Federal Bank Ltd. share price target

Federal Bank Ltd is a major Indian commercial bank in the private sector headquartered in Kerala having 1,251 branches and 1,942 ATM/ Recyclers and a loan book size of ~Rs116,000cr. A muted sequential growth in interest income due to the decline in the yield on advances from 9.55% in Q1FY20 to 9.33% in Q2FY20. Business growth was moderate at 17%, with advances and deposits growing at 15% & 18% YoY respectively. The provisions slightly increased on a YoY basis and the bank has...

After a relatively steady show over the trailing three quarters, a small but broad stumble (growth, margins and opex) is evident. Even as corporate slippages were significantly higher (largely from identified stress), the steady watchlist and a <2% SMA book provide consolation on asset quality. At 1.1x FY21E ABV, valuations are cheap and reflect FB's inconsistent journey through challenging macros. It is noteworthy that the incumbent MD&CEO was granted a only year's extension by the regulator (with conditions for further extension). Maintain BUY with a TP of Rs 119. FB saw higher slippages, margin contraction, slower growth and an opex bump up in 2QFY20. A static watchlist was the silver lining. With a TP of Rs 119 (1.5x Sept-21 ABV of Rs 79), we maintain BUY.

Federal Bank reported a decline in its credit growth at 15% YoY (vs 19% Q1FY20) due to a cautious approach towards its corporate portfolio. Net Interest Income grew by 10% YoY led by decline in NIMs, while PAT grew by 56% YoY due to corporate tax rate cut benefit (effective tax rate at 11% vs 35% in Q1FY20). Operating profit grew by 15% YoY driven by a 30% growth in Non-Interest Income. GNPA due to higher slippages in the quarter increased by 8bps sequentially to 3.07%. With NIM declined by 14bps QoQ to 3.01%, cost to income ratio increased by 410bps QoQ to 53.5%. We revise down the PAT estimates by 4%/10% for FY20/21 and re-iterate BUY' with a new TP of Rs.110 (Rs...

one account of Rs1.8bn to large group, while retail/SME continued on their run rate. Few accounts from NBFC/HFC of Rs7.7bn continue to be on stress list which remains a risk to asset quality leading to miss in guidance but bank has been making adequate provision on case to case basis to cushion hits and remain within the credit cost guidance range. Stock currently trades attractive valuations of 1.3x FY20 & 1.2x FY21 ABV with a steady NIM and continued operating levers. Retain BUY with revised TP of Rs102 (from Rs121) based on 1.3x Sep-21 ABV as we lower loan growth and adjust to...

Many one-offs dent operating profit, Retain BUY Net profit came in at 4.2 bn, up by 56.6% yoy. This quarter numbers were marked by slower growth, higher NPLs (led by one large corporate account), elevated opex cost and a miss on margins too. Slippages were at 5.4 bn (vs. 4.2 bn qoq) which were largely led by one large corporate account amounting to 1.8 bn. Bank highlighted its exposure to few large vulnerable accounts (incl. 2 HFCs and IL&FS;) amounts to 4.75 bn which are still standard in the books and provisions on these are at 0.7 bn. Margins qoq slipped by ~14 bps to 3% led by linking of advances & deposits to external benchmark repo rates. Mgmt expects exit margin of 3.13.15% in FY20. On the opex side, due to fall in the yields and upward revision in wage hike...

Federal Bank is a Private Sector, scheduled commercial bank in India, headquartered in Aluva, Kochi.

Federal Bank Limited (FBL) is a major private sector bank headquartered at Aluva, Kerala with 1,251 branches and 1,668 ATMs spread across 25 states, Delhi NCR and 4 union territories. The Bank was incorporated on April 23, 1931 as the Travancore Federal Bank Limited, Nedumpuram and Late K.P. Hormis, the visionary banker and founder took up the reigns in 1945 and built the bank a nationwide institution. The bank's business segments include Retail, Corporate, Business Banking, Commercial Banking and Agriculture. FBL is a pioneer among traditional banks in India in the area of using technology to leverage its...

Q1FY20 operational performance of Federal Bank (FB) was healthy with strong fee income growth and steady provisions with controlled slippages in a seasonally weak quarter. NII growth was muted with advance growth of 19%, marginally lower than previous run rate.

The bank witnessed a strong 30% YoY growth in operating profit and the Net Interest Income grew by 18% over the same period. Total deposits increased 19% YoY, with a muted CASA growth at 12% YoY, and CASA ratio declined by 203bps YoY to 31.44%. The provisions remain stable on a YoY basis with a marginal decline in provision coverage ratio sequentially to 67.41%. The bank maintained a stable asset quality with GNPA/NNPA at 2.99%/1.49%, but a sharp rise witnessed in retail slippages....

Inconsistent performance across parameters (spanning asset quality and C-I) capped valuations for FB over several quarters. We sense increasing stability over the last two quarters. Despite factoring higher slippages and provisions towards stressed exposures, FB can deliver earnings CAGR of ~28% led by operating leverage and better core performance, especially asset quality. To be sure, FB has stumbled in the past but several corrective initiatives are probably paying off, finally. UPGRADE to BUY with a TP of Rs 117. We upgrade Federal Bank to BUY (TP Rs 117, 1.5x June-21 ABV of Rs 77) after a better than expected show across parameters, in a seasonally weak quarter. Further consistency can lead on to significantly better outcomes.