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India Equity Research Reports, IPO and Stock News
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L o n g - t e r m v i e w s t a y s i n t a c t …
Federal Bank is one of our top portfolio picks from the midcap private
space and our long-term view stays intact. The business growth stalled
QoQ with deposits at | 42396 crore (up 23% YoY) and loan book at |
31,972 crore (up 14% YoY). NIM dipped 13 bps QoQ, 28 bps YoY to 3.9%.
This was due to cost of deposits rising by 64 bps QoQ, 120 bps YoY and
relatively higher deposit growth YoY. Non interest income growth also
showed a dull performance at | 117 crore, down 17% QoQ. Higher
slippages during the quarter led to | 134 crore of provisions, which
marred PAT growth. PAT of | 146 crore was lower than our estimate.
ƒ Asset quality deteriorates, management confident of improvement
The NPA situation, which improved in Q4FY11, slipped in Q1FY12
due to retail segment NPA (which is not expected to get repeated).
In absolute terms, GNPA rose 13% QoQ to | 1300 crore (3.9% of
loan book) while NNPA jumped 24% QoQ to | 236 crore (forming
0.7% of loan book). PCR stood at 80%. The management is
expecting higher recoveries and upgradation, which would control
further deterioration in asset quality. It expects GNPA@ 3% for
FY12E. We have factored in GNPA @ 3.1% and NNPA @ 0.6% in
FY13E. We expect the bank to control legacy accounts since
structural changes have been made in the model by which the bank
used to originate and underwrite loans. We, therefore, maintain our
longer term view that asset quality jitters will peak out in H1FY12E.
ƒ Lacklustre performance for the quarter
Federal Bank reported a dull performance in Q1FY12 due to system
underperformance for almost half the quarter. The bank usually
announces employee transfers in early April every year which got
delayed this time around to May end. This along with
unprecedented employee struggle led to such a performance.
V a l u a t i o n
At the CMP of | 420, the bank is trading at 1.4x FY13E ABV. We anticipate
a shift in RoE from 12-13% currently to 17%and RoA to 1.3% in FY13E.
We believe the jitters over asset quality will get settled now and balance
sheet growth will pick up pace. We expect the bank to maintain NIM at
~4% in FY13E. We have valued the bank at 1.7x FY13E ABV to arrive at
target price of | 518
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
L o n g - t e r m v i e w s t a y s i n t a c t …
Federal Bank is one of our top portfolio picks from the midcap private
space and our long-term view stays intact. The business growth stalled
QoQ with deposits at | 42396 crore (up 23% YoY) and loan book at |
31,972 crore (up 14% YoY). NIM dipped 13 bps QoQ, 28 bps YoY to 3.9%.
This was due to cost of deposits rising by 64 bps QoQ, 120 bps YoY and
relatively higher deposit growth YoY. Non interest income growth also
showed a dull performance at | 117 crore, down 17% QoQ. Higher
slippages during the quarter led to | 134 crore of provisions, which
marred PAT growth. PAT of | 146 crore was lower than our estimate.
ƒ Asset quality deteriorates, management confident of improvement
The NPA situation, which improved in Q4FY11, slipped in Q1FY12
due to retail segment NPA (which is not expected to get repeated).
In absolute terms, GNPA rose 13% QoQ to | 1300 crore (3.9% of
loan book) while NNPA jumped 24% QoQ to | 236 crore (forming
0.7% of loan book). PCR stood at 80%. The management is
expecting higher recoveries and upgradation, which would control
further deterioration in asset quality. It expects GNPA@ 3% for
FY12E. We have factored in GNPA @ 3.1% and NNPA @ 0.6% in
FY13E. We expect the bank to control legacy accounts since
structural changes have been made in the model by which the bank
used to originate and underwrite loans. We, therefore, maintain our
longer term view that asset quality jitters will peak out in H1FY12E.
ƒ Lacklustre performance for the quarter
Federal Bank reported a dull performance in Q1FY12 due to system
underperformance for almost half the quarter. The bank usually
announces employee transfers in early April every year which got
delayed this time around to May end. This along with
unprecedented employee struggle led to such a performance.
V a l u a t i o n
At the CMP of | 420, the bank is trading at 1.4x FY13E ABV. We anticipate
a shift in RoE from 12-13% currently to 17%and RoA to 1.3% in FY13E.
We believe the jitters over asset quality will get settled now and balance
sheet growth will pick up pace. We expect the bank to maintain NIM at
~4% in FY13E. We have valued the bank at 1.7x FY13E ABV to arrive at
target price of | 518
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