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Federal Bank: Key parameters set to improve from FY12E…
Federal Bank reported a modest 8% YoY and flat QoQ growth in the
loan book to | 28240 crore and 7% in deposits to | 36914 crore for
Q3FY11. The strategic step to haul growth and improve the quality of
earnings led to such an outcome. Bulk deposits advantageously consist
of 22% of total deposits from 27% in FY08. This helped the bank to
control CoD from 6.6% in FY10 and 6.5% in Q3FY10 to 6% for Q3FY11.
CASA share improved 370 bps YoY to 29.6% while ~36% of overall
deposits are low cost in nature (including NRE deposits). This helped
the bank to maintain NIM of over 4% in the past five quarters, 4.3% in
Q3FY11. For Q3FY11, NII of | 447 crore was in line with our estimates
while PAT of | 143 crore came a tad ahead. Asset quality despair
continues, which would be an overhang in the near term.
…asset quality slips further, improvement seen ahead
The bank reported 5% QoQ, 46% YoY addition to GNPA and the ratio
stands at 3.95%. On the NNPA front, it reported a 22% QoQ jump to | 227
crore (0.8% of loan book) due to lower provisioning in Q3FY11. PCR
stands at 79%, ahead of mandatory requirement. The management
sounds confident of improvement in asset quality from Q4FY11 onwards
and internally plans to reduce GNPA by 10% YoY from FY12E. The bank
is targeting quality growth leading to the current consolidation phase. The
restructured book is ~5% of loan book of which ~18% has slipped to
NPA. We expect NPA additions to recede and recoveries to step up from
FY12E and see GNPA@3.5% and NNPA@ 0.4% by FY13E.
Growth forecast tweaked
We have further revised down our estimate for business growth in FY11E
to 10% YoY (13% earlier). We see quality earnings substituting for lower
growth ahead. We now estimate 16% CAGR in business mix over FY10-
13E ensuring 14% asset growth over the same period to | 65408 crore.
This would lead to PAT CAGR of 23% over FY10-13E to | 863 crore.
Valuation
At the CMP of | 365, the bank is trading at 1.2x FY13E ABV, which looks
attractive and comfortable. We anticipate a shift in RoE from 11-12%
currently to 16%and RoA to 1.4% in FY13E. We expect apprehensions
over lower growth and asset quality to fade as balance sheet growth picks
up, recoveries step up and slippages moderate from FY12E and maintain
our target price of | 501.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Federal Bank: Key parameters set to improve from FY12E…
Federal Bank reported a modest 8% YoY and flat QoQ growth in the
loan book to | 28240 crore and 7% in deposits to | 36914 crore for
Q3FY11. The strategic step to haul growth and improve the quality of
earnings led to such an outcome. Bulk deposits advantageously consist
of 22% of total deposits from 27% in FY08. This helped the bank to
control CoD from 6.6% in FY10 and 6.5% in Q3FY10 to 6% for Q3FY11.
CASA share improved 370 bps YoY to 29.6% while ~36% of overall
deposits are low cost in nature (including NRE deposits). This helped
the bank to maintain NIM of over 4% in the past five quarters, 4.3% in
Q3FY11. For Q3FY11, NII of | 447 crore was in line with our estimates
while PAT of | 143 crore came a tad ahead. Asset quality despair
continues, which would be an overhang in the near term.
…asset quality slips further, improvement seen ahead
The bank reported 5% QoQ, 46% YoY addition to GNPA and the ratio
stands at 3.95%. On the NNPA front, it reported a 22% QoQ jump to | 227
crore (0.8% of loan book) due to lower provisioning in Q3FY11. PCR
stands at 79%, ahead of mandatory requirement. The management
sounds confident of improvement in asset quality from Q4FY11 onwards
and internally plans to reduce GNPA by 10% YoY from FY12E. The bank
is targeting quality growth leading to the current consolidation phase. The
restructured book is ~5% of loan book of which ~18% has slipped to
NPA. We expect NPA additions to recede and recoveries to step up from
FY12E and see GNPA@3.5% and NNPA@ 0.4% by FY13E.
Growth forecast tweaked
We have further revised down our estimate for business growth in FY11E
to 10% YoY (13% earlier). We see quality earnings substituting for lower
growth ahead. We now estimate 16% CAGR in business mix over FY10-
13E ensuring 14% asset growth over the same period to | 65408 crore.
This would lead to PAT CAGR of 23% over FY10-13E to | 863 crore.
Valuation
At the CMP of | 365, the bank is trading at 1.2x FY13E ABV, which looks
attractive and comfortable. We anticipate a shift in RoE from 11-12%
currently to 16%and RoA to 1.4% in FY13E. We expect apprehensions
over lower growth and asset quality to fade as balance sheet growth picks
up, recoveries step up and slippages moderate from FY12E and maintain
our target price of | 501.
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