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Lower growth warrants target price revision
Shyam Srinivasan (the new CEO of Federal Bank), is currently focusing
on technology upgradation and process implementation for entering a
new phase of growth from FY12E onwards. Consequently, the growth
estimates for FY11E were curtailed compared to our earlier projections.
Therefore, we have revised our estimates after our recent interaction
with the management, which entails lowering our target price to | 501.
Management curtails business growth for FY11E
We have revised down our business growth estimates for FY11E from
22% earlier to 13% to | 71606 crore. Advances are now seen up 13% YoY
to | 30465 crore and deposits by 14% to | 41140 crore. This would lead
to a balance sheet growth of 13% for FY11E to | 49409 crore (| 52360
crore projected earlier). Therefore, we estimate a growth of 15% CAGR in
balance sheet over FY10-13E to | 66924 crore.
PAT seen at 18% CAGR over FY10-13E
Slow loan growth and rising cost of funds will impact net interest income
for FY11E to | 1647 crore (earlier seen at | 1707 crore). We believe this
stream will report 16% CAGR over FY10-13E (22% CAGR expected
earlier). Non interest income growth has been scaled down in line with
balance sheet growth to | 558 crore for FY11E. Provisioning is expected
to stay higher at | 596 crore that would result in 13% PAT growth for
FY11E to | 522 crore, down 14% than our previous estimate of | 604
crore. We now foresee 18% CAGR in PAT over FY10-13E to | 759 crore.
Valuation
The bank is currently in a phase of consolidation and is expected to pick
up the pace of growth from FY12E onwards. Federal Bank is one of the
earlier banks to move to system based NPA recognition. Hence, the
impact of such a move is already factored in. The bank’s exposure to MFI,
telecom and commercial real estate is ~5-6% of total outstanding loan
book. Hence, we see GNPA of 3% in FY13E, little higher than our previous
estimate of 2.7%. In such a scenario, we now value the bank at 1.7x
FY13E ABV (1.8x valued earlier) and lower our target price to | 501.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Lower growth warrants target price revision
Shyam Srinivasan (the new CEO of Federal Bank), is currently focusing
on technology upgradation and process implementation for entering a
new phase of growth from FY12E onwards. Consequently, the growth
estimates for FY11E were curtailed compared to our earlier projections.
Therefore, we have revised our estimates after our recent interaction
with the management, which entails lowering our target price to | 501.
Management curtails business growth for FY11E
We have revised down our business growth estimates for FY11E from
22% earlier to 13% to | 71606 crore. Advances are now seen up 13% YoY
to | 30465 crore and deposits by 14% to | 41140 crore. This would lead
to a balance sheet growth of 13% for FY11E to | 49409 crore (| 52360
crore projected earlier). Therefore, we estimate a growth of 15% CAGR in
balance sheet over FY10-13E to | 66924 crore.
PAT seen at 18% CAGR over FY10-13E
Slow loan growth and rising cost of funds will impact net interest income
for FY11E to | 1647 crore (earlier seen at | 1707 crore). We believe this
stream will report 16% CAGR over FY10-13E (22% CAGR expected
earlier). Non interest income growth has been scaled down in line with
balance sheet growth to | 558 crore for FY11E. Provisioning is expected
to stay higher at | 596 crore that would result in 13% PAT growth for
FY11E to | 522 crore, down 14% than our previous estimate of | 604
crore. We now foresee 18% CAGR in PAT over FY10-13E to | 759 crore.
Valuation
The bank is currently in a phase of consolidation and is expected to pick
up the pace of growth from FY12E onwards. Federal Bank is one of the
earlier banks to move to system based NPA recognition. Hence, the
impact of such a move is already factored in. The bank’s exposure to MFI,
telecom and commercial real estate is ~5-6% of total outstanding loan
book. Hence, we see GNPA of 3% in FY13E, little higher than our previous
estimate of 2.7%. In such a scenario, we now value the bank at 1.7x
FY13E ABV (1.8x valued earlier) and lower our target price to | 501.
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