Federal Bank - Moving in the Right Direction : Edelweiss PDF link

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We recently interacted with Federal Bank’s (FB) top management, which is confident of clocking 20% plus growth in FY15 as: (1) post a successful consolidation phase, it is well geared to capitalise on the much anticipated macro recovery, which will feed into higher corporate demand (likely in H2FY15); and (2) continued traction in SME and retail. Though the slipping cost-income ratio does strike a sour note as past investments are yet to bear fruits, rising productivity riding on improved revenue traction is bound to lower the ratio (45% target by FY15), which in turn will boost return ratios. This, coupled with stable/improving margins, augurs well for operating performance. Management is confident of sustaining the past 3 quarters’ asset quality improvement as the pipeline of stressed accounts is shrinking. Further, minimal exposure to companies impacted by coal mining de-allocation lends comfort.

Armed with requisite fire power for growth

FB’s conscious strategy of sharpening focus on debulking corporate book and on quality took a toll on growth in FY14. However, SME and retail (ex-gold) continued to thrive, growing 26% and 16% YoY, respectively, during the year. Our optimism that the bank is well entrenched on the growth track stems from: it successfully navigated the consolidation phase (debulking of corporate portfolio), SME/retail are holding the fort brilliantly and strategic expansion is in place. FB expects surge in investment demand to lead to 20% plus growth in FY15.

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LINK
https://www.edelweiss.in/research/Federal-Bank--Moving-in-the-Right-Direction/27165.html