Visit http://indiaer.blogspot.com/ for complete details �� ��
Federal Bank is a mid-sized Kerala-based bank, with a balance sheet size of ~Rs441b
(2QFY11). The bank has 719 branches and more than 761 ATMs. The bank caters to a large
number of NRIs. NRI deposits constitute ~28% of its total retail deposits. The bank's
operations were confined to Kerala until 1972, after which it expanded to all metropolitan
centers.
Key investment arguments:
A strong share of low cost deposits (29% CASA and NRI deposits) and a higher share of
high yielding retail and SME loans will keep margins strong at ~4%. With a large balance
sheet, capabilities and distribution strength in place, the bank's key focus is to improve risk
management systems and processes to tackle NPA issues and have quality growth ahead.
Lower slippages and higher upgrades and recovery could deliver a positive surprise in
FY12E.CAR at ~17% is comfortable and improving leverage in coming years could
substantially improve RoE.
Recent Highlights:
Federal Bank's 2QFY11 net profit, which was in line with our expectations, grew 39% YoY to
Rs1.4b. This was due to 33% YoY growth in NII, supported by higher margins (up 74bp
YoY) despite muted loan growth. Loans grew 7% YoY and 2% QoQ to Rs276b and deposits
grew 8% YoY and 3% QoQ to Rs361b in 2QFY2011.
GNPAs in absolute terms increased 5% QoQ to Rs12b but NNPA declined 7% QoQ to
Rs1.9b as the bank made higher provisions for NPA leading to improved PCR to 83% v/s
81% a quarter earlier
Valuation and view:
Under the leadership of Srinivasan, the bank will focus on the retail and SME segments as
prime growth drivers. But in the medium term, balance sheet growth will remain moderate
until back-end processes improve.
We estimate EPS of Rs35 in FY11 and Rs41 in FY12 amounting to EPS CAGR of 22% over
FY10-12. The stock trades at FY12E P/E of 11.6x and P/BV of 1.4x.
No comments:
Post a Comment