Report
Nitin Aggarwal
EUR 120.00 For Business Accounts Only

MOSL: FEDERAL BANK (Buy)-Asset quality broadly stable; earnings outlook getting strengthened

FEDERAL BANK: Asset quality broadly stable; earnings outlook getting strengthened

(FB IN, Mkt Cap USD2.3b, CMP INR85, TP INR110, 29% Upside, Buy)

 

Restructured book increases to ~1.9% of loans led by Retail

  • FB reported a PAT of ~INR3.7b in 1QFY22, led by strong other income (recovery from a written-off account and treasury gains of INR2.6b). It prudently deployed these gains towards provisions, which stood elevated at INR6.4b (63% YoY increase), to further strengthen its Balance Sheet.
  • The bank posted a moderation in business growth, with loans across most segments declining sequentially. Deposit growth was muted, while the CASA ratio touched ~35% (record high levels). The share of Retail deposits rose to 93% of total deposits.
  • On the asset quality front, higher disruption due to the second COVID wave caused elevated slippages of INR6.4b (annualized ~2% of loans), though higher write-offs led to stable asset quality ratios. Provision coverage remains stable ~66% (highest among midsize Banks). The restructured book increased to ~1.9% of loans (v/s ~1% of loans in FY21). It expects to restructure loans worth INR4b (~0.3% of loans) over 2QFY22. Collection efficiency remained stable at 95%.
  • We maintain our earnings for FY22E/FY23E and estimate RoA/RoE at 1.1%/13.8% for FY23E. FB remains our top pick among midcap Banks. We maintain our BUY rating with a TP of INR110 per share (1.2x FY23E ABV + INR9/share from subsidiaries/JVs).
Underlying
Federal Bank Ltd.

Federal Bank is a commercial banking entity based in India. Co. is engaged in offering its customers private and commercial banking, leasing and merchant banking services, through its head office in Aluva and its 422 branches. Co. maintains a full range of delivery channels including, Internet Banking, Mobile Banking and Alerts, Any Where (Branch) Banking, Interconnected Visa enabled ATM network, E-mail Alerts, Telephone Banking and a Centralised customer Call Centre with toll free number. Co. offers its customers 24 hour banking service from various service channels. As of Mar 31 2003, Co.'s total assets and deposits amounted to IRs122,011,685,000 and IRs109,460,167,000, respectively.

Provider
Motilal Oswal
Motilal Oswal

​Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance. 

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

Analysts
Nitin Aggarwal

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