EUR 120.00 For Business Accounts Only

MOSL: FEDERAL BANK (Buy)-Business momentum remains strong-return ratios to improve further

Federal Bank: Business momentum remains strong; return ratios to improve further

(FB IN, Mkt Cap USD2.8b, CMP INR98, TP INR120, 23% Upside, Buy)

• 4QFY19 PAT of INR3.8b (8% ahead of our estimates) was led by controlled provisions of INR1.8b (7% QoQ decline). PPoP increased 28% YoY to INR7.5b (in line). For FY19, PPoP grew 20.6% YoY while PAT rose 42% YoY to INR12.4b.
• NII stood at INR10.9b (+17.5% YoY), which, coupled with 31.1% YoY growth in other income, drove 20.9% YoY growth in total revenues. NIM remained flat sequentially at 3.17%. Fee income was robust, up 21.4% YoY to INR2.9b.
• Loan growth stood at 19.9% YoY (+4.4% QoQ), led by 24%/20% YoY growth in retail/corporate loans, while SME growth remained muted at 12% YoY. Deposits grew 20.5% YoY while CASA mix stood at 32.2% (-120bp QoQ).
• Fresh slippages moderated to INR2.6b (1.1% annualized) driven by 32%/50% YoY/QoQ decline in SME slippages and NIL corporate slippage. However, slippages in agri portfolio increased 64.3% YoY as bank up-fronted some stress aggrieved by political influence. Healthy recoveries/upgrades at INR3.23b drove 419bp QoQ improvement in PCR to 50.1% (67.2% including TWO). GNPA/NNPA ratios improved 22bp/24bp QoQ to 2.92%/1.48%.