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

Please Share::

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

��

-->
Federal Bank
Likely to perform better, upgrade target price to Rs 175 and
continue to maintain BUY….
We continue to prefer mid size private banks over large cap banks and remain buyers
in Federal bank. We believe Federal Bank is likely to continue its strong performance
led by 1) pick up in loan growth largely in SME and retail, 2) stable margins, 3)
relatively better asset quality and 4) reasonable valuation. Valuation at P/ABV of
1.7x and 1.6x for FY15E and FY16E ABV looks reasonable, hence maintain buy with
revised target price of Rs 175, valuing at 1.8x FY16E ABV which is lower than closest
peer valuation of 1.8-2.1x for FY16 ABV (please refer peer valuation table).
We had initiated buy on Federal Bank on 5th May 2014 in NiveshMonthly report for
the month of May 2014 at Rs 92 with target price of Rs 109. Further we have come
up with detailed initiating coverage on Federal bank on 3rd June 2014 at Rs 118 with
upwards revised target price of Rs 137 and to Rs 153 after Q2FY15 results. Stock
has yielded return of 63% since 5th May 2014. The rationales for recommendation
were –
1) Likely pick up in credit growth from mid teen growth rate to high teen majorly
led by SME / Retail, 2) Healthy liability franchise with consistent improvement in
CASA ratio to 30.6% in Q2FY15 (from 27-28% in FY12 and FY13) along with decline
in bulk deposits to 1.8% in Q2FY15 (from 20% in FY12), 3) Stable Net interest margins
of 3.4% for FY15E and FY16E 4) better asset quality amongst peers at Gross and Net
NPA of 2.1% and 0.66% respectively and 5) expected improvement in ROEs to 15%
by FY16E from 12.6% in FY14.

LINK
http://www.indianivesh.in/Admin/Upload/635561336913141250_NiveshDaily%20-%202%20January%202015.pdf