Federal Bank BUY - Long term play :: HDFC Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Long term play
FB’s reported net earnings were higher than
estimates led by almost NIL provisions, although the
quality of earnings was weak. Core earnings were
lower than estimates with slower loan growth &
subdued NIMs. Gross stressed additions inched up
QoQ led by one large account in the corporate
segment. On the positive front, FB maintained its
stable CASA ratio & headline asset quality along with
a high PCR.
Given the slower growth during 9MFY15, we have
lowered our growth assumptions & earnings
estimates. We have lowered net earnings estimates
by ~4% over FY15-17E. With a high branch network,
healthy tier I and well provided BS, FB remains one of
our preferred bets amongst peers. As operating
leverage improves along with a decline in additions
to impaired assets, we expect return ratios to
improve (RoA/RoE of 1.3/15% by FY17E). Maintain
BUY with TP of Rs 175 (1.6x FY17E ABV)
 Headline asset quality was stable with GNPA rising by a
mere 3% QoQ to Rs 10.7bn (2.2%). However, gross
additions increased QoQ at Rs 2.3bn (1.9% ann.) led by
one large corporate a/c of Rs 1.25bn. Slippages in
Retail (Rs 310mn) & SME (Rs 780mn) continued its
downward trajectory. Aggregate reductions were
higher at Rs 2bn (w/w write offs at Rs 620mn) vs. Rs
1.6bn in 2Q. With stable PCR at 85%, NNPA increased
5% QoQ to Rs 3.3bn (0.69%).
 Mgmt hinted for stress in 3-4 accounts worth Rs 2.8bn
(incl. one large a/c of Rs 1.25bn). With improving
granularity of the B/S, we have factored slippages of
avg. 1% over FY15-17E. FB restructured loans of Rs
400mn; o/s book stood at Rs 24.8bn (5.2% of loans).
 After three consecutive quarters of sequential growth,
FB reported flattish loan book (Rs 480bn, +15% YoY &
11% FYTD) in 3Q. Large corporate loans (31% of loans)
declined 6% QoQ due to high repayments during the
quarter. FB continued its strong momentum in SME
loans (18% YoY; 25% of loans) and also witnessed a
pick-up in retail loans (+15/2% YoY/QoQ). As cautious
strategy, bank’s gold loan (13.8% of book) declined
3% QoQ after three consecutive quarters of growth.
CASA was maintained at 31% with steady SA traction
(+15/2.2% YoY/QoQ).

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010735