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UBS Investment Research
Federal Bank
Quarter of consolidation
„ Event: Results below expectations
Q1FY12 net profit at Rs1.46bn (+11% y/y) was below UBS-e in spite of better NII
growth of 11%, mainly due to lower NPL recoveries and higher NPL provisions.
Other highlights: 1) NIM of 3.87% down only 13bpq/q, 2) loan growth of 18%y/y
and flat q/q, 3) NPL slippage stayed high at 4% of loans, 4) LLP rose to 1.5% from
1.2% in Q4FY11, 5) new centralised risk management structure put in place in Q1.
„ Impact: Lower loan growth estimates to 20%
We lower our loan growth forecast from 24% to 20% in FY12/13 considering the
slowdown in system credit. NPL addition stayed high at 4% of loans against an
expectation of decline due to 1) installing the new centralised risk management, 2)
NPL creation from 1 branch due to improper lending to property developer/home
loans (Rs280 mn) and 3) man days lost due to work disruption by workers
association upon termination of an employee. We maintain LLP forecast at 1.2%
for FY12/13 as we expect NPL addition to fall to 2.5-3.0% in next three qtrs.
„ Action: Restructuring on track
We cut FY12/13 earnings by 2%/5% as we factor in slower loans. We believe Q1
was one of consolidation and the bank is on track to show improvement in metrics
in next 6-12 months and remains candidate of re-rating. The stock offer attractive
risk –reward at 1.3x FY12 book and 9.8x earnings in our view.
„ Valuation: Maintain Buy, PT 600
We roll over to mid FY13 and we derive our PT of Rs 600 using a residual income
model which implies 1.6x FY13E book and 10.6x FY13 earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Federal Bank
Quarter of consolidation
„ Event: Results below expectations
Q1FY12 net profit at Rs1.46bn (+11% y/y) was below UBS-e in spite of better NII
growth of 11%, mainly due to lower NPL recoveries and higher NPL provisions.
Other highlights: 1) NIM of 3.87% down only 13bpq/q, 2) loan growth of 18%y/y
and flat q/q, 3) NPL slippage stayed high at 4% of loans, 4) LLP rose to 1.5% from
1.2% in Q4FY11, 5) new centralised risk management structure put in place in Q1.
„ Impact: Lower loan growth estimates to 20%
We lower our loan growth forecast from 24% to 20% in FY12/13 considering the
slowdown in system credit. NPL addition stayed high at 4% of loans against an
expectation of decline due to 1) installing the new centralised risk management, 2)
NPL creation from 1 branch due to improper lending to property developer/home
loans (Rs280 mn) and 3) man days lost due to work disruption by workers
association upon termination of an employee. We maintain LLP forecast at 1.2%
for FY12/13 as we expect NPL addition to fall to 2.5-3.0% in next three qtrs.
„ Action: Restructuring on track
We cut FY12/13 earnings by 2%/5% as we factor in slower loans. We believe Q1
was one of consolidation and the bank is on track to show improvement in metrics
in next 6-12 months and remains candidate of re-rating. The stock offer attractive
risk –reward at 1.3x FY12 book and 9.8x earnings in our view.
„ Valuation: Maintain Buy, PT 600
We roll over to mid FY13 and we derive our PT of Rs 600 using a residual income
model which implies 1.6x FY13E book and 10.6x FY13 earnings.
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