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UBS Investment Research
Key Call: Federal Bank
B ranching out
Event: Bank opens 66 branches on foundation day
Celebrating its 66th foundation day, Federal Bank opened 66 branches through the
country yesterday. This takes the total branch network to 812 enhancing the banks
footprint through the country. Of 66 branches opened, 38 were opened in Gujarat,
Karnataka, TN and Maharashtra and the rest in Kerala. We expect the bank to add
80 more branches by March 2012 thereby expanding its branch network by 20%.
Impact: Leadership making a difference
This is again a progressive step in our view by the new management following the
measures taken to overhaul the risk management and to improve non-fund based
income earlier. Our positive view is premised on execution which we believe is
firmly on track particularly with respect to asset quality improvement, improving
growth and better quality of liability franchise.
Action: BUY; at inflection point
The bank has struggled with high NPA additions and slow balance sheet growth
over the past two years. However, we believe this is changing under its new
management as it implements new risk management structures and adds fee based
products and inculcates a performance based incentive culture among its staff. We
think it has the potential to trade between public and private bank levels following
the implementation of new strategies and therefore presents significant upside.
Valuation: Rs550 price target and Buy rating
We derive our price target of Rs550 based on a residual income model. Our price
target implies 1.5x FY13E P/BV and 10x FY13E earnings
Federal Bank
Federal Bank, established in 1931, is the largest old private sector bank in India
in terms of assets. It was listed on the National Stock Exchange in 1998. At end-
2010, it had a total asset base of Rs462bn and 737 branches in 24 states
(approximately 60% in Kerala). It had a deposit base of Rs369bn and a loan
book of Rs282bn. Non-resident Indians (NRIs) contributed 26% of retail
deposits and the bank's CASA ratio stood at 29%. Federal Bank also holds 26%
equity in a JV life insurance company with IDBI Bank and Fortis Insurance
International. FIIs held a 38% stake in the bank as at December 2010.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts, leading to a slowdown in credit and increased
NPL risk, as well as impacting fee income and exerting pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Key Call: Federal Bank
B ranching out
Event: Bank opens 66 branches on foundation day
Celebrating its 66th foundation day, Federal Bank opened 66 branches through the
country yesterday. This takes the total branch network to 812 enhancing the banks
footprint through the country. Of 66 branches opened, 38 were opened in Gujarat,
Karnataka, TN and Maharashtra and the rest in Kerala. We expect the bank to add
80 more branches by March 2012 thereby expanding its branch network by 20%.
Impact: Leadership making a difference
This is again a progressive step in our view by the new management following the
measures taken to overhaul the risk management and to improve non-fund based
income earlier. Our positive view is premised on execution which we believe is
firmly on track particularly with respect to asset quality improvement, improving
growth and better quality of liability franchise.
Action: BUY; at inflection point
The bank has struggled with high NPA additions and slow balance sheet growth
over the past two years. However, we believe this is changing under its new
management as it implements new risk management structures and adds fee based
products and inculcates a performance based incentive culture among its staff. We
think it has the potential to trade between public and private bank levels following
the implementation of new strategies and therefore presents significant upside.
Valuation: Rs550 price target and Buy rating
We derive our price target of Rs550 based on a residual income model. Our price
target implies 1.5x FY13E P/BV and 10x FY13E earnings
Federal Bank
Federal Bank, established in 1931, is the largest old private sector bank in India
in terms of assets. It was listed on the National Stock Exchange in 1998. At end-
2010, it had a total asset base of Rs462bn and 737 branches in 24 states
(approximately 60% in Kerala). It had a deposit base of Rs369bn and a loan
book of Rs282bn. Non-resident Indians (NRIs) contributed 26% of retail
deposits and the bank's CASA ratio stood at 29%. Federal Bank also holds 26%
equity in a JV life insurance company with IDBI Bank and Fortis Insurance
International. FIIs held a 38% stake in the bank as at December 2010.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts, leading to a slowdown in credit and increased
NPL risk, as well as impacting fee income and exerting pressure on NIM.
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