Federal Bank | Q3FY15 First Cut Analysis | We have a BUY rating on stock with target price of Rs 175 . :: IndiaNivesh

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Federal Bank - Treasury Aids Profitability, Loan Build Up Key Monitorable; Result Update Q3FY15 :: Edelweiss, report

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Federal Bank - Credit traction improving; stable NPA… :: ICICI Securities, report

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Federal Bank: Muted performance :: Kotak Sec,report

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Muted performance. Federal Bank delivered a muted performance with earnings
growth of 15% yoy driven by treasury income. Further improvement in loan growth from
15% yoy in the previous quarter did not materialize as large corporate loans grew <10 p="">yoy or declined 6% qoq. There are challenges to the business, especially on funding side
due to the recent decline in crude prices but we think the changes effected to the
business should make it easier for the bank. Maintain BUY. TP revised to `160 (from `145)


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Federal Bank BUY - Long term play :: HDFC Securities

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Federal Bank | Likely to perform better, upgrade target price to Rs 175 and continue to maintain BUY…. IndiaNivesh,

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Federal Bank (Update) : Growth momentum to continue. Maintain BUY :: HDFC Sec, link

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Buy Federal Bank, :: ICICI Securities

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Federal Bank|Q2FY15 Result Update | As expected consolidation over, moving on for growth… upgrade to buy from hold with target price of Rs 153…:: IndiaNivesh

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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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Federal Bank : Structural concerns discounted : Ambit

Structural concerns discounted
We have been toning down our expectation on Federal Bank (FB)’s
operating performance even as there has been a tangible
improvement in the bank’s asset quality, particularly for retail and
SME books. Our analysis of FB’s geographical concentration and its
impact on FB’s liability franchise, fee income generation and cost
efficiency show that any improvement from hereon would be gradual,
and the process could test the management’s and investors’ patience.
However, in the last three months, the stock has underperformed the
Bankex by 11% and current valuation of 0.63x FY14 BV seems to
discount these long-term structural concerns. Our target price of `312,
valuing FB at 0.75x FY14 BV, implies 21% upside.
Competitive position: WEAK Changes to this position: NEGATIVE
Deep-rooted inertia: As discussed earlier (page 13-15), geographical
diversification is the key to a bank’s liability franchise, as it leads to low cost of
funds, better income generation and cost efficiencies. FB’s management has
been focused on addressing asset quality issues but the need to evolve into a
more geographically diversified franchise has been neglected. For a bank of
FB’s size, its concentration in a small state (Kerala) has led to weak operating
performance - a low CA ratio (stuck at around 5% for the last 11 years), and a
meagre fee income to assets ratio of 0.6%. Weak income generation has led
to deterioration in cost ratios (cost to income of 35% in FY09 vs 45% in FY13).
The recent exit of a non-executive director suggests a degree of
disenchantment in the Boardroom with the bank’s progress
(http://goo.gl/NC7455). We believe further signs of discontent in the
Boardroom of FB cannot be ruled out and could be an overhang on the stock
Lacks levers for profitability improvement: The bank’s NIMs are already
structurally down (from 4.3% in FY09 to 3.4% in FY13), owing to: (1) derisking to lower-yielding assets; and (2) deregulation of the non-resident
deposits interest rates. The geographical concentration of the branch
expansion will hinder low-cost deposit mobilisation and limit the decline in the
cost of funds. Fee income to assets would remain subdued at ~0.6%, as
opportunities remain limited due to branch concentration. The pressure on
income generation, we believe, will keep cost to income at ~45%. Mediumterm trends in retail and SME asset quality have indeed improved but the
corporate loan segment remains a key risk in the current environment. We
build in FY14-15 average credit costs of ~75bps (vs 58bps in FY13 and 74bps
in FY12). Profitability will, hence, decline, with RoAs of ~1.1% in FY14-15 (vs
1.3% in FY13 and 1.4% in FY12).
Valuation and stance: The stock has underperformed the Bankex by 11%
and current valuation of 0.63x FY14 BV seems to discount these long-term
structural concerns. We cut our FY14/15 estimates by 25% and cut our TP by
47% to `312. Our TP implies 0.8x FY14 P/B and 6.5x FY14 P/E.

Federal Bank Ltd Return ratios to improve :: Sunidhi

With the RBI looking at issuing new bank licenses, competition in the banking industry
is expected to heat up. In such a situation the future of old private banks which are
smaller in size and geographically concentrated appears uncertain. In our opinion one
of two scenarios are likely to play out 1) old private banks especially those with poor
profitability and asset quality concerns could become takeover targets for new private
sector banks and 2) larger old private banks could scale up operations and re-engineer
business processes to bridge the gap between themselves and new private banks. This
in turn could lead to a re-rating in the stock price of these banks. Given its large size
and proactive management, we believe that Federal bank is amongst the best placed
old private sector banks to make the transformation into a new generation bank.
NIM likely to improve to 3.4% in FY15
Federal Bank reported a NIM of 3.1% for Q1FY14, which improved sequentially by 6 bps.
The NIM improvement came on the back of a reduction in bulk deposits and an
improvement in the CASA ratio. Going ahead we expect Federal Bank’s NIM to improve
further as the bank continues to focus on reducing bulk deposits and improving CASA.
Non-interest income to pick up going ahead
Federal bank’s initiatives such as tying up with foreign banks for raising LC’s, installing
CRM solutions to identify cross selling opportunities, leveraging on NRI clientele to
increase other income etc would lead to a pick up in fee based income going ahead. We
expect fee based income to grow by a CAGR of 18% from FY13-15.
Asset quality impacted by volatile slippages in the corporate segment, SME, Agri and
Retail slippages in check
Federal Bank revamped its processes to improve asset quality. Some of the measures
undertaken by the bank included – separation between loan sourcing and sanctions,
improving loan appraisal systems and focus on credit monitoring and collection. Post
the revamp, the bank has managed to keep in check slippages in the SME, Agri and retail
segments. However volatile corporate slippages have impacted asset quality. Once the
economy stabilizes, corporate slippages are likely to stabilize. Additionally the bank has
a strong provision coverage ratio of 81% including technical write offs. This will act as a
buffer in case of asset quality deterioration.
Adequately capitalized
The bank is adequately capitalized with a capital adequacy ratio of 15% almost entirely
comprised of Tier 1 capital. As the bank leverages on its capital, return on equity is likely
to improve going ahead.
Buy with a price target of `547
At the current market price of `318, the bank trades at 0.8x it FY14E ABV and 0.7x its
FY15E ABV. We believe the worst in terms of NIMs compression, asset quality and
return ratios is behind us and focus on strong and profitable growth, prudent lending
and likely improvement in asset quality will drive earnings growth going forward. Thus
we have a Buy rating on the stock with a price target of `547 (1.5x FY14E ABV adjusted
for slippages from restructuring).

Goldman Sachs, Federal Bank (FED.BO)err group Below expectations on higher provisions and lower top line

Federal Bank (FED.BO)
Buy Equity Research
Below expectations on higher provisions and lower top line
What surprised us
FED reported 1QFY14 PAT of Rs1.1bn, -44% yoy and 56%/50% below
Gse/Bloomberg on higher loan loss provisioning and lower top line,
although asset quality showed an improvement. Key highlights: 1) Asset
quality improved as GNPLs declined 5% qoq on fresh slippages that
moderated to 3.2% from 3.8% in 4QFY13. Even the fresh stress loan
formation (fresh slippages + fresh restructuring – slippages from
restructuring) was much lower at 2.5%; 2) Credit costs came in much
higher at 2.3% vs GSe 0.6%, as the bank chose to fully provide against one
large account, NAFED, an Indian govt. entity; 3) Coverage ratio improved
c.200bps to 83%, though the bank aggressively wrote off NPLs during the
quarter; 4) NIM expansion of 6bps qoq was limited as credit-deposit (CD)
ratio dropped to 72.4%, 414bps lower sequentially; 5) The drop in CD ratio
was triggered by strong growth in NRE deposits (13% qoq vs -1% qoq for
total deposits) and moderation in loan growth across all segments as the
bank turned cautious due to a challenging macro environment; 6) Savings
deposits grew 8% qoq, primarily led by higher growth in NRE savings
deposits (+14% qoq). The SA ratio moved up to 24.2%, +210bps vs
4QFY13; 7) Growth in mortgage continued (+5% yoy and 2% qoq), though
the volatility in gold loan prices has led to a sequential contraction in the
bank’s gold loan book.
What to do with the stock
We lower our FY14-16E EPS by 3-13% to factor in higher provisions and
lower NII. Consequently, we lower our 12-m RIM-based TP to Rs510 (from
Rs530), but maintain Buy. Key risks: Higher slippages, lower loan growth,
and missteps in execution of strategy.

Federal Bank- Buy Q4FY13 Result Update ::Centrum

A weak quarter though better times ahead
As expected, FED’s Q4FY13 core performance was weak with quality of earnings surprising negatively. NIM contracted by 40bps QoQ on reversal of interest income on NPA. Asset quality matrix improved with gross slippage rate easing to 3.8% and %GNPA easing by 40bps QoQ to 3.4%. We look at FY2013 as a year of realignment for the bank and believe that worst on asset quality is behind us. We believe that our thesis revolving around RoE expansion remains intact driven by NIM expansion and contained operating expenses and credit costs. Our estimates imply RoE of 14.6% for FY14 and 16.2% for FY15. We maintain Buy and target price of Rs600 (1.5x Sep’14E).

NIM contracts by 40bps QoQ: NII de-grew by 2% YoY to Rs4.8bn as NIM contracted by 40bps QoQ to 3.05% during the quarter while credit growth stood at 17% YoY. The NIM contraction can be traced to reversal of interest income on NPAs and FITL (15-20bps) and partly due to 25bps reduction in base rate during Feb’13. This outweighed sequential improvement in investment yields and cost of funds. With pipeline of stress assets narrowing down, lower cost of funds and better loan mix, we expect the bank to expand its NIM by ~20bps during FY2014.

Loan growth moderate at 17% but strong traction ahead: Loan growth during the quarter was a tad slower at 17% YoY (19% in the previous quarter) with bank continuing with its portfolio rebalancing exercise. Retail (up 25% YoY) and SME (22% YoY) grew at cost of corporate segment (up 7% YoY). Incrementally, the bank remains comfortable in expanding its SME and retail book given acceptable slippage performance though cautious stance towards corporate segment will stay for the near term. FY14 is likely to see material pick up in credit growth as the management is targeting ~25% YoY rate.

One-off slippage mars performance Federal bank:: Centrum

One-off slippage mars performance
FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn
estimated) though spike in provisions led to a lower than expected bottomline.
NIM contracted by ~10bps QoQ on reversal of interest income on NPAs.
Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate
jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85%
and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps.
Notwithstanding the one-off hit to asset quality during the quarter, we
remain positive on the radical changes introduced by the new management
and its potential long term benefits. We stick to our thesis of RoE expansion,
which in turn should drive further re-rating of the stock over the long term.
We maintain Buy and target price of Rs600.
NIM contracts by 11bps QoQ: NII de-grew by 6% YoY to Rs5.0bn as NIM
contracted by 11bps QoQ offsetting the uptick in credit growth (19% YoY vs
8% last quarter). Importantly, the contraction in NIM was the result of reversal
of interest income on NPAs (Rs300mn mainly Air India & NAFED). Meanwhile,
cost of deposits inched up marginally as the last leg of NR deposits repriced
upwards to post-deregulation rates. Q4FY13 would still have the burden of Air
India FITL and hence will continue to contain NIMs. Management guided for a
NIM of 3.55% for FY13.
Uptick in loan growth: Loan growth during the quarter registered an uptick
and stood at 19% YoY (from 8% in the previous quarter) with key segments
driving growth. The corporate segment made a major comeback with 12.6%
QoQ growth. Incrementally, the bank remains comfortable in expanding its
SME and retail book given acceptable slippage performance though cautious
stance towards corporate segment will stay for the near term. The
management intends to close FY13 with a loan growth of 15-16% while for
FY14 it expects to get more aggressive with target of ~25% YoY.

One-off slippage mars performance Federal bank:: Centrum

One-off slippage mars performance
FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn
estimated) though spike in provisions led to a lower than expected bottomline.
NIM contracted by ~10bps QoQ on reversal of interest income on NPAs.
Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate
jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85%
and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps.
Notwithstanding the one-off hit to asset quality during the quarter, we
remain positive on the radical changes introduced by the new management
and its potential long term benefits. We stick to our thesis of RoE expansion,
which in turn should drive further re-rating of the stock over the long term.
We maintain Buy and target price of Rs600.
NIM contracts by 11bps QoQ: NII de-grew by 6% YoY to Rs5.0bn as NIM
contracted by 11bps QoQ offsetting the uptick in credit growth (19% YoY vs
8% last quarter). Importantly, the contraction in NIM was the result of reversal
of interest income on NPAs (Rs300mn mainly Air India & NAFED). Meanwhile,
cost of deposits inched up marginally as the last leg of NR deposits repriced
upwards to post-deregulation rates. Q4FY13 would still have the burden of Air
India FITL and hence will continue to contain NIMs. Management guided for a
NIM of 3.55% for FY13.
Uptick in loan growth: Loan growth during the quarter registered an uptick
and stood at 19% YoY (from 8% in the previous quarter) with key segments
driving growth. The corporate segment made a major comeback with 12.6%
QoQ growth. Incrementally, the bank remains comfortable in expanding its
SME and retail book given acceptable slippage performance though cautious
stance towards corporate segment will stay for the near term. The
management intends to close FY13 with a loan growth of 15-16% while for
FY14 it expects to get more aggressive with target of ~25% YoY.

Federal Bank Ltd Q3FY13 result: Microsec Research

Federal Bank Ltd has announced its Q3FY13 result on 17^th January 2013.

The bank’s total income increased by 8.66% QoQ and 5.29% YoY to INR701.20 crores, Whereas, Profit After Tax (PAT) decreased by 2.01% QoQ and increased by 4.41% YoY to INR210.78 crores. Bank has increased its provision by 144.30% QoQ but decreased by 35.45% YoY to INR74.39 crores.

During the quarter, Bank's loans book and total deposits expanded by 18.94% and 10.41% YoY to INR39494.03 and INR51607.31 crores respectively. On the assets quality front, the bank’s assets quality is still the matter of concern, NNPA increased by 24bps QoQ and 18bps YoY to 0.92%. On the margin front,  Net Interest Margin (NIM) decreased by 9bps QoQ and 45bps YoY to 3.49%. However, bank is well capitalized to support its growth trajectory, Capital Adequacy Ratio (CAR) stood at 14.92% which is around 6% higher than the regulator’s stipulated norms. 

Q3’13 (INR Crores)	Consensus	Actual	Variance %
PAT	220	210.78	-4.19%

Federal Bank Quarterly-[INR-Crores]
DESCRIPTION	Q3'13	Q2'13	Q3'12	QoQ%	YoY%
Interest Earned	1521.77	1525.63	1466.83	-0.25	3.75
Interest Expended	1024.42	1019.72	938.80	0.46	9.12
NII	497.35	505.91	528.03	-1.69	-5.81
Other Income	203.85	139.41	137.93	46.22	47.79
Total Income	701.20	645.32	665.96	8.66	5.29
Operating Expenses	307.26	295.68	247.24	3.92	24.28
Operating Profit before Prov.& Cont.	393.94	349.64	418.72	12.67	-5.92
Provisions and Contingencies	74.39	30.45	115.25	144.30	-35.45
PBT	319.55	319.19	303.47	0.11	5.30
Tax	108.77	104.09	101.60	4.50	7.06
Profit After Tax	210.78	215.10	201.87	-2.01	4.41
Adj Calculated EPS	12.32	12.58	11.80	-2.07	4.41
Advances	39494.03	36299.18	33206.07	8.80	18.94
Deposits	51607.31	49518.07	46742.46	4.22	10.41
	Q3'13	Q2'13	Q3'12	QoQ (bps)	YoY(bps)
Capital Adequacy Ratio Basel II	14.92%	15.79%	15.91%	-87	-99
% of Net NPAs	0.92%	0.68%	0.74%	24	18
% of Gross NPAs	3.85%	3.83%	3.97%	2	-12
Provisions Coverage%	74.53%	80.00%	80.54%	-547	-601
Net Interest Margin %	3.49%	3.58%	3.94%	-9	-45
C/D ratio	76.53%	73.30%	71.04%	322	549
C/I Ratio	43.82%	45.82%	37.13%	-200	669
OI/TI	56.18%	54.18%	62.87%	200	-669

Regards,

Team Microsec Research

Federal Bank:: Weak core performance :: Centrum

Weak core performance
FED’s Q1FY13 core performance came in weaker than expected (PPP at
Rs3.5bn vs Rs3.8bn estimated) led by 15bps NIM contraction QoQ and slightly
higher opex. However, bottomline was in line led by materially lower
provisioning costs. High slippage rate (3%) and significant addition to
restructured book (Rs2bn) for the quarter were disappointing. Given the
limited upside to our fair value estimate, we downgrade the stock to Reduce.
NIM contracts by 15bps QoQ: NII grew by a muted 7% yoy and flattish QoQ
to Rs4.9bn as NIM contracted by 15bps QoQ offsetting healthy credit growth
(19% YoY). Importantly, the NIM is the result of material dip in investment
yields (~40bps QoQ) while loan yields stood flattish QoQ. The normalisation of
NIM is likely to continue, led by gradually shifting the loan mix in favour of the
corporate segment (besides the sector-wide challenge of rising funding costs).
Corporate segment drives loan growth: Following the trend in recent
quarters, the corporate loan book continued to remain the key loan growth
driver as the management leveraged its equity further. Corporate loan growth
stood strong at 24% YoY compared with 15.6% for SME and 14% for the retail
segment. Importantly, the bank witnessed strong traction in gold loans (up
99% YoY and 18% QoQ), which resulted in an increase in the share of gold
loans in the overall loan mix to 11.2% from 9.5% in 4QFY12.

Federal Bank - BUY ::Business Line

Technicals: NIIT tech, Kaveri Seed, TTK Healthcare, Federal Bank, Navneet Publications, EID Parry, SRF, :Business Line

Please provide technical guidance on SRF and EID Parry both of which are currently trading at 52-week lows.

Ajit

SRF (Rs 199.7): You are right in stating that SRF is trading at a 52-week low. The stock is in a medium-term down-trend since the peak of Rs 444 recorded in November 2010. But it is halting at the key long-term support at Rs 200. This level occurs at 61.8 per cent retracement of the stock’s up-move from February 2009 low.

We can give the stock leeway up to Rs 180. That is long-term investors can hold the stock as long as it trades above Rs 180. But decline below this level will drag the stock to Rs 98 or even further to Rs 62.

Medium-term resistances for the stock would be at Rs 290, Rs 320 and Rs 350. The stock needs to record a strong close above Rs 350 to pave the way for a rally to Rs 444.