Federal Bank Getting ready for big innings :Emkay,

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Federal Bank

Getting ready for big innings

ACCUMULATE

CMP: Rs377                                        Target Price: Rs425

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n     New management reinstates confidence in the bank through major changes in the risk management policy and various measures to drive fee income growth

n     Centralization of the loan processing system and focus on recoveries to bring down slippage rate from 3% to 2% by FY13 and credit cost from 1.7% in FY11 to 1.2% in FY13

n     Branch expansion in NRI/ SME regions to improve liability profile with increased opportunity for SME funding as well. Low cost deposit ratio to increase to 38% by FY13

n     Balance sheet leverage to drive RoE from 12% in FY11 to 14% by FY13. Initiate coverage with a ‘ACCUMULATE’ rating and TP of Rs425 (1.1X FY13ABV)