Federal Bank (Q2 FY13)

India Infoline News Service | Mumbai |

Federal Bank’s loan book de-grew by 4.6% sequentially led by 16% qoq contraction in corporate book.

CMP Rs486, Target Rs564, Upside 16.1%

  • Federal Bank’s loan book de-grew by 4.6% sequentially led by 16% qoq contraction in corporate book. Resultantly, proportion of corporate piece reduced to 39% of total advances compared to 44% in Q1 FY13. On the other hand, SME and Retail portfolio grew by 5.4% and 4.2%, respectively, increasing their share in the overall lending portfolio. Gold loans (8.5% qoq/99.3% yoy) continued to be the main growth driver in Retail segment, followed by smaller components like Education (20% qoq) and Mortgage (12%). Management has guided a 16-18% credit growth in FY13. Despite 31% sequential growth in NR Deposits, total deposits de-grew by 2.1% qoq. The reason was rundown in high value deposits by 23% qoq and decline in retail TDs by 12.5% qoq. CASA ratio improved by 64 bps to 29% in Q2 FY13. With de-growth in advances being higher than deposits, C/D ratio fell to 73% in Q2 FY13 from 75% in Q1 FY13.
  • NIM improved by 16bps to 3.58% owing to rise in YoA (23bps qoq) being higher than the increase in CoD (6bps qoq). Shift in focus from lower-yielding Corporate segment to higher-yielding Retail and SME segment resulted in spike in YoA. We expect NIM to remain stable around 3.6% owing to decline in proportion of high-value deposits (from 25% in FY11 to 11% in H2 FY13), increasing focus on higher-yielding credit segments and improvement in C/D ratio (growth in advances likely to be aggressive in H2 FY13 to achieve the desired growth of 16-18%).
  • Asset quality improved with annualized delinquency ratio decreasing to 1.6% in Q2 FY13 from 2.9% in Q1 FY13. Out of the total slippages of Rs1.5bn, SME and Retail accounted for Rs1.1bn and Rs0.4bn respectively. There were absolutely no slippages from the corporate segment. Federal Bank has not recognized NAFED account (exposure of ~Rs2bn) as an NPA (in contrast to South India Bank that classified it as an NPA in Q2 FY13) as there has been no payment issues at Federal bank. GNPA ratio rose by 23bps sequentially to 3.8% mainly due to de-growth in advances. PCR continued to remain robust at 80%.
  • Other income grew at healthy pace, reporting 12.1% qoq/19.2% yoy growth, driven by fee income (21.7% qoq) and portfolio gains (36.5% qoq). Recovery from w/off accounts has been weak on account of lower write-off in the loan book. C/I ratio rose from 43.7% in Q1 FY13 to 45.8 % Q2 FY13. Management has indicated a decrease in Cost/Income ratio to 42-43% led by substantial increase in income (driven by strong growth in higher-yielding segments and continued traction in non-interest income) and moderation in its branch expansion plans.
  • Federal Bank is strongly capitalized with CAR of 15.8%, more-than-commensurate to meet its balance sheet expansion plans in the medium term.
  • In current challenging situation, Federal Bank provides comfort on multiple fronts – sound asset quality, stable NIM, strong traction in fee income, robust provisioning cover, high capitalization, and healthy RoA. Thereby, maintain BUY with increased target price to Rs564.
Result table
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 15,256 15,367 (0.7) 13,678 11.5
Interest expended (10,197) (10,451) (2.4) (8,934) 14.1
Net Interest Income 5,059 4,916 2.9 4,744 6.6
Other income 1,394 1,243 12.1 1,170 19.2
Total Income 6,453 6,160 4.8 5,914 9.1
Operating expenses (2,957) (2,695) 9.7 (2,301) 28.5
Provisions (305) (628) (51.5) (722) (57.8)
PBT 3,192 2,837 12.5 2,891 10.4
Tax (1,041) (934) 11.5 (979) 6.3
Reported PAT 2,151 1,904 13.0 1,912 12.5
EPS 12.6 11.1 13.0 11.2 12.5
 
Key  Ratios Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) 3.6 3.4 0.2 3.8 (0.2)
Yield on Advances (%) 12.8 12.5 0.2 12.7 0.0
Cost of Deposits (%) 7.6 7.6 0.1 7.4 0.2
CASA (%) 29.0 28.4 0.6 26.4 2.6
C/D (x) 73.3 75.2 (1.9) 71.1 2.2
Non-interest income (%) 21.6 20.2 1.4 19.8 1.8
Cost to Income (%) 45.8 43.7 2.1 38.9 6.9
Provisions/Income (%) 4.7 10.2 (5.5) 12.2 (7.5)
RoE (%) 14.3 13.1 1.2 14.3 0.0
RoA (%) 1.4 1.3 0.2 1.4 (0.0)
CAR (%) 15.8 15.5 0.3 15.1 0.7
Gross NPA (%) 3.8 3.6 0.2 3.6 0.2
Net NPA (%) 0.7 0.6 0.1 0.6 0.1
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY11
BSE 103.90 [1.20] ([1.14]%)
NSE 103.75 [1.25] ([1.19]%)

***Note: This is a NSE Chart

 

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