EUR 120.00 For Business Accounts Only

MOSL: FEDERAL BANK (Buy)-Gold loans witnessing robust traction; business granularity improving

FEDERAL BANK: Gold loans witnessing robust traction; business granularity improving

(FB IN, Mkt Cap USD2.3b, CMP INR86, TP INR110, 28% Upside, Buy)

 

• In its FY21 Annual Report, FB highlighted the progress it is making in strengthening the Balance Sheet and the focus it is laying on building its Gold loans portfolio, along with the newly launched Credit Card product. Higher focus is placed on leveraging its distribution base through the RM model, which will enable further improvement in the C/I ratio.
• The bank remains focused on granular lending, led by Retail/SME segment, within which Gold loans witnessed robust traction (+70% YoY). Retail mix has now improved to 33% v/s 27% in FY18.
• Liability franchise continues to remain robust and granular, with the concentration of top 20 deposits declining to 4.8% (~120bp YoY decline).
• FB's exposure to the top 20 borrowers increased marginally by 10bp to 10.4%, while RWA growth has been under control, resulting in moderation in RWA density.
• The business outlook remains modest. The bank would grow in a calibrated manner, and the emphasis will continue to be on sustained earnings. The bank has recently announced a capital infusion of INR9.16b (from IFC) and proposed to augment its capital base further via various routes even as the current CAR remains comfortable.
• We estimate FB to deliver an FY23E RoA/RoE of 1.1%/14.3% and maintain Buy with a TP of INR110 (1.1x FY23E ABV).