Federal Bank's 2QFY11 net profit grew 39% YoY:: Motilal Oswal

Visit http://indiaer.blogspot.com/ for complete details �� ��



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 (in line), supported by higher margins (up 74bp YoY) despite muted loan growth.

Key highlights:
 Loans grew 7% YoY and 2% QoQ to Rs276b and deposits grew 8% YoY and 3% QoQ to Rs361b in 2QFY2011. CD
ratio declined to 77% v/s 78% in 1QFY11.


 CASA deposits grew by 23% YoY and 5% QoQ, higher than overall deposit growth, leading to improvement in the
CASA ratio to 29.4% (from 25.8% in 2QFY10 and 29% in 1QFY11).
 NII grew 33% YoY and 6% QoQ led by margin expansion to 4.4% in 2QFY11 (up 27bp QoQ and 74bp YoY).
Improvement in yield on loans was a key driver for margin. Re-pricing benefits kept costs of deposits under control
with sequential increase of just 6bp whereas YoL increased by 40bp QoQ.
 While fee income growth was muted YoY at 6%, QoQ growth of 10% is encouraging.
 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.
 While a low rise in GNPA is positive, continued higher slippages of Rs2.6b in 2QFY11 (although moderated from
Rs3.3b in 1QFY11), and annualized slippage ratio of 3.8% for 2QFY11 and 4.3% for 1HFY11 is disappointing.
Valuation and view: While RoA of the bank will be strong at 1.3-1.4%, RoE is likely to be in mid-teens until FY12 as
growth moderates. 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. Maintain Buy with a revised target price of Rs535 (1.6x
FY12E BV of Rs334).