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For 2QFY2012, Federal Bank recorded strong net profit growth of 36.2% yoy (up
30.8% qoq), above our estimates, mostly due to lower provisioning expenses than
built in by us. The bank’s asset quality improved significantly during the quarter,
with slippages reducing by `58cr sequentially and credit cost improving by 46bp
qoq. We recommend Buy on the stock.
CASA ratio improves; asset-quality shows signs of stabilisation: For 2QFY2012,
advances and deposits registered strong growth. Advances grew by 21.6% yoy
(up 5.1% qoq) to `33,607cr and deposits grew by 30.9% yoy (up 10.1% qoq) to
`47,263cr. CASA deposits grew by a less impressive 14.5% yoy compared to
deposit growth, leading to CASA ratio shrinking by 367bp yoy (down 151bp qoq)
to 25.7%. Including NRE deposits, total low-cost deposits constituted 31.3% of
total deposits (32.8% in 1QFY2012). A major portion of the bank’s loan book is
on a floating basis, which led to a sharp rise of 76bp qoq in yield in advances to
12.7% in 2QFY2012. However, cost of deposits also rose by 42bp qoq, leading
to a sequential 10bp decline in reported NIM to 3.8%. During 2QFY2012,
non-interest income remained flat sequentially (down 18.8% yoy) at `117cr.
CEB income came in at `31cr (flat qoq), however recoveries continued to be weak
at `14cr, declining by 41.4% qoq. Asset quality of the bank witnessed a
significant improvement in 2QFY2012, with gross NPA ratio declining by 33bp
qoq to 3.6% and net NPA ratio declining by 16bp qoq to 0.6%. Slippages for
2QFY2012 reduced by `58cr sequentially to `265cr (annualised slippages ratio
at 3.3%). The bank had witnessed higher retail slippages in 1QFY2012 due to
one-off employee-related issues.
Outlook and valuation: At the CMP, the stock is trading at 1.0x FY2013E ABV.
While lower leverage is leading to low RoE at present, the bank’s core RoA is
relatively high. We recommend Buy on the stock with a target price of `444
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Federal Bank recorded strong net profit growth of 36.2% yoy (up
30.8% qoq), above our estimates, mostly due to lower provisioning expenses than
built in by us. The bank’s asset quality improved significantly during the quarter,
with slippages reducing by `58cr sequentially and credit cost improving by 46bp
qoq. We recommend Buy on the stock.
CASA ratio improves; asset-quality shows signs of stabilisation: For 2QFY2012,
advances and deposits registered strong growth. Advances grew by 21.6% yoy
(up 5.1% qoq) to `33,607cr and deposits grew by 30.9% yoy (up 10.1% qoq) to
`47,263cr. CASA deposits grew by a less impressive 14.5% yoy compared to
deposit growth, leading to CASA ratio shrinking by 367bp yoy (down 151bp qoq)
to 25.7%. Including NRE deposits, total low-cost deposits constituted 31.3% of
total deposits (32.8% in 1QFY2012). A major portion of the bank’s loan book is
on a floating basis, which led to a sharp rise of 76bp qoq in yield in advances to
12.7% in 2QFY2012. However, cost of deposits also rose by 42bp qoq, leading
to a sequential 10bp decline in reported NIM to 3.8%. During 2QFY2012,
non-interest income remained flat sequentially (down 18.8% yoy) at `117cr.
CEB income came in at `31cr (flat qoq), however recoveries continued to be weak
at `14cr, declining by 41.4% qoq. Asset quality of the bank witnessed a
significant improvement in 2QFY2012, with gross NPA ratio declining by 33bp
qoq to 3.6% and net NPA ratio declining by 16bp qoq to 0.6%. Slippages for
2QFY2012 reduced by `58cr sequentially to `265cr (annualised slippages ratio
at 3.3%). The bank had witnessed higher retail slippages in 1QFY2012 due to
one-off employee-related issues.
Outlook and valuation: At the CMP, the stock is trading at 1.0x FY2013E ABV.
While lower leverage is leading to low RoE at present, the bank’s core RoA is
relatively high. We recommend Buy on the stock with a target price of `444
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