Federal bank Ltd-Q3FY11 Earnings Updates (Keynote Capitals)

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

 Q3-FY11 earnings updates on Federal Bank Ltd.

Federal bank came out with modest results for 3QFY11 with 29.8% increase in the Net Profit on yoy basis at Rs143.10cr and 17.4% increase in the NII at Rs447.25cr. Interest spreads increased on y-o-y basis to 5.03% against 4.93% a year ago. NIM was also up at 4.31% against 4.05% a year ago. Tax provisions decreased by 39% (yoy) at Rs71.23cr and Net Profit grew by 30% on yoy basis to Rs143.10cr.

Developments during the quarter

Ø   Stable growth in business:

The total business increase by 7.5% on yoy basis and is expected to grow by 11.9% in FY11E. The CD ratio hovers ~76.5% as of Dec-10 and the stable growth in its total business would result in maintaining its CD ratio at same levels.                

Ø  Improvement in margins:

§  Net Interest Margin maintained at a robust level of 4.31 %.

§  Cost of deposits reduced by 44 bps to reach 6.03 % as at end Dec 2010.

§  Yield on advances marginally down to 11.06 % on y-o-y basis.

§  Cost to Income ratio remains at a comfortable level of 37.30%.

Ø  Increase in earnings

The Bank delivered ROE of 11.4% (annualized) and ROA of 1.3% (annualized) for Q3FY11 and is well capitalized for growth with Total Capital Adequacy of 16.4% as at Dec 31, 2010.

Ø  Asset Quality

The asset quality of the bank is stable with gross and net NPA ratios of 3.9% and 0.8% respectively, as of Dec-2010. Provision coverage stands at 79.0% well above RBI’s mandate of 70%.

Ø   Other developments:

§  The total number of branches and ATMs has increased to 737 and 775 respectively, as on Dec-2010. The bank has received clearance from RBI for opening 60 more branches in Tier 1 and Tier 2 centres, out of which, majority will be located outside Kerala state. 3 additional Regional Offices are also proposed to be started in the coming months. Besides this, it plans to open more than 50 branches in Tier 3 to Tier 6 centres in this fiscal.

§  The business per employee and profit per employee for 3QFY11 are at Rs7.96cr and Rs0.07cr respectively, as against Rs7.90cr and Rs0.05cr respectively, for 3QFY10.

§  With a view to enhance the convenience of its customers, bank has recently made free usage of other bank’s ATM, enabling its debit card holder to transact through any bank’s ATM in the country, any number of times, without being levied any charges.

§  Tie-up with 14 leading Asset Management Companies for Mutual Fund sales.

Valuation & Recommendation

Considering the bank's total business growth, stable asset quality and margins, we revised our target price to Rs425 per share by assigning a multiple of 1.35x FY12E P/ABV with a Buy recommendation. At CMP of Rs362.95, the stock is trading at 1.36x FY10 P/ABV and is expected to trade at 1.27xFY11E and 1.16xFY12E P/ABV.