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Federal Bank
Investment case: We like Federal Bank as we believe it is at the brink of an
operational turnaround brought about by a change in leadership and a structural
improvement in asset quality. Under the new management we expect the bank to
focus on improving the contribution of fee-based income (which is one of the
lowest in the industry) to offset the cyclical decline in NIMs, while we expect
pickup in asset growth and a decline in credit costs to support earnings growth
of 27% over FY11-13E, which is one of the highest rates in the industry.
Valuation: We derive our price target using a residual income model which
implies 1.5x FY13E book and 10x FY13E earnings. At 0.9x FY13E book and
6.4x FY13E earnings, FB is one of the cheapest private sector banks in India
with the potential to re-rate to new generation private sector bank peers, in our
view.
2012 Catalysts: We expect a fall in slippages to a sustainable level to lead to a
decline in credit costs; coupled with growth in fee income this should result in
ROE expansion from the current 12% to 16% in FY13.
read details and other companies in list (click link below)
UBS India – Outlook 2012 ::Most & Least Preferred Stock Ideas for 2012
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