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Key Takeaways
Federal Bank plans SME-driven loan growth strategies
Leveraging its strong expertise of SME lending in Kerala, the Federal Bank (FB)
management plans to grow SME loans aggressively in Punjab, Maharashtra, Gujarat,
Karnataka and Tamil Nadu. FB has set up SME credit hubs and retail credit hubs in
major centers for faster loan processing.
For FY12 the management expects to grow loans by 18-20% YoY and deposits by
21-22%.
NRI deposits a focus area
On the deposit front, FB might focus more on NRI deposits and improve its liability
profile. It is also targeting rich belts of NRI deposits in North and West India, such as
Punjab and Gujarat, to provide impetus to its NRI business.
About 80% of FB's NRI deposits come from the Middle East and it has ~7% market
share of NRI remittances
NRI deposits provide float money and wealth management opportunities.
Currently, FB's CASA ratio is 27% and including the low-cost NRI deposits the ratio
is 33-34%. The management aims to increase this to 40% led by new products and
by improving efficiency.
Asset quality to remain stable
Improvement in credit monitoring and control, automation and new and improved
processes will control delinquencies going forward.
As on 1QFY12, gross NPAs were ~3.9% driven by sequentially higher slippages.
However, at net level, NPAs were at 0.7% as PCR was healthy at ~82%.
The management expects asset quality to be healthy and does not expect a negative
surprise on that front.
Margins to moderate but remain higher than peers
Margins declined sharply by ~60bp over the past three quarters to 3.87%.
The management expects some more moderation in margins from current levels
and expects margins to be 3.7-3.8% in FY12.
Other details
FB plans to scale up its branch network to 1,000 by the end of 2012 from 746
branches as on 1QFY12. Branch expansion is likely to focus more in North and West.
Valuation and view
We estimate EPS of INR41.5 in FY12 and INR46.2 in FY13. We estimate BV of
INR327 in FY12 and INR359 in FY13. The stock trades at FY12E P/BV of 1.1x and
PBV of 1x FY13E. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Federal Bank plans SME-driven loan growth strategies
Leveraging its strong expertise of SME lending in Kerala, the Federal Bank (FB)
management plans to grow SME loans aggressively in Punjab, Maharashtra, Gujarat,
Karnataka and Tamil Nadu. FB has set up SME credit hubs and retail credit hubs in
major centers for faster loan processing.
For FY12 the management expects to grow loans by 18-20% YoY and deposits by
21-22%.
NRI deposits a focus area
On the deposit front, FB might focus more on NRI deposits and improve its liability
profile. It is also targeting rich belts of NRI deposits in North and West India, such as
Punjab and Gujarat, to provide impetus to its NRI business.
About 80% of FB's NRI deposits come from the Middle East and it has ~7% market
share of NRI remittances
NRI deposits provide float money and wealth management opportunities.
Currently, FB's CASA ratio is 27% and including the low-cost NRI deposits the ratio
is 33-34%. The management aims to increase this to 40% led by new products and
by improving efficiency.
Asset quality to remain stable
Improvement in credit monitoring and control, automation and new and improved
processes will control delinquencies going forward.
As on 1QFY12, gross NPAs were ~3.9% driven by sequentially higher slippages.
However, at net level, NPAs were at 0.7% as PCR was healthy at ~82%.
The management expects asset quality to be healthy and does not expect a negative
surprise on that front.
Margins to moderate but remain higher than peers
Margins declined sharply by ~60bp over the past three quarters to 3.87%.
The management expects some more moderation in margins from current levels
and expects margins to be 3.7-3.8% in FY12.
Other details
FB plans to scale up its branch network to 1,000 by the end of 2012 from 746
branches as on 1QFY12. Branch expansion is likely to focus more in North and West.
Valuation and view
We estimate EPS of INR41.5 in FY12 and INR46.2 in FY13. We estimate BV of
INR327 in FY12 and INR359 in FY13. The stock trades at FY12E P/BV of 1.1x and
PBV of 1x FY13E. Maintain Buy.
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