Federal Bank (Q4 FY12)

India Infoline News Service | Mumbai |

During Q4 FY12, bank advanced ~Rs10bn to Kerela SEB after thoroughly investigating its credit quality. The bank has guided to grow its loan book by 20-22% in FY12.

  • Federal Bank’s loan book grew significantly by 13.7% sequentially, versus our expectation of 9.5% qoq. The yoy credit growth stood at 18.2% against the bank’s guidance of 14-15%. The robust growth was attributable to Corporate lending (~17% qoq), followed by SME (13.1% qoq) and Retail (7.6% qoq). Corporate segment was the key focus area (accounting for 44% of the total Advances) and will continue to remain so as bank foresee good opportunities in this segment. Gold loans (35% of the Retail book) grew by 20% qoq. During Q4 FY12, bank advanced ~Rs10bn to Kerela SEB after thoroughly investigating its credit quality. The bank has guided to grow its loan book by 20-22% in FY12.
  • Deposits grew by 4.7% qoq, slightly below our expectation of 6%. The growth was driven by Retail deposits (12.3% qoq), Demand deposits (10.9% qoq) and NRE Deposits (8% qoq). Bank has been consistently reducing its High-value deposits, from 16.8% of total deposits in Q3FY12 to 14.6% in Q4 FY12. During Q4 FY12, High-value deposits de-grew by 8.9%. CASA ratio declined by 67bps qoq (27.5% in Q4 FY12) owing to 1.5% decline in its Savings account balances. The fall in Savings account balances was structural on account of migration of some accounts from NRE SA to NRE TDs. With advances growing much ahead of the deposits, C/D ratio improved from 71% to 77.2% sequentially. As per management, growth in Deposits in FY13 will be calibrated according to the growth in Advances.
  • NIM fell by 38bps standing at 3.56% as against our expectation of 10bps fall. The sharp decline in NIM was owing to 39bps fall in Yield on Advances. YoA was hit by interest reversal on restructured advances.  Management expects NIM to remain in the range of 3.6-3.7% in FY13. Cost of deposit is likely to remain under pressure in the near term owing to the repricing of NRE TDs (~Rs11bn yet to be repriced at the current high rate). However, shedding of High-value deposits and focus on CASA may offset this effect on CoD.
  • Asset quality panned out stunningly in Q4FY12 given a 62bps decline in Gross NPA ratio, from 4% to 3.4% qoq, and 83bps decline in Net NPA/Networth ratio, from 4.3% to 3.5% qoq. Fresh additions to NPAs stood at Rs2.7bn in Q4 FY12 compared to Rs3.3bn in Q3 FY12. The reduction in NPA was witnessed in the corporate segment which reported delinquencies of Rs1.3bn in the current quarter compared to Rs1.9bn in the previous quarter. As a result, slippage ratio has declined to 3% from 4% in Q3 FY12. During the quarter, bank restructured accounts worth Rs9.6bn. Out of which Rs8bn pertained to aviation sector and Rajasthan SEB. There is no restructuring request pending for any of the major accounts in the near term. With a write-back of NPA provisions of Rs410mn, credit cost turned out to be negative in Q4 FY12. However, bank guided to maintain it around 90-100bps in FY13. Also, other provisions spiked up in the current quarter (Rs670mn) owing to NPV sacrifice of Rs340mn and provisions on standard assets of Rs230mn. PCR rose from 80.5% to 81.1% sequentially.
  • Other income grew significantly by 16.5% qoq. The main growth drivers were CEB/other fee income (15.1% qoq) and profit on sale of securities (132.6% qoq). During the quarter, bank added 115 branches and 114 ATMs. Substantial branch and ATM additions and manning of these branches led to spike in Cost/Income ratio from 37.1% in Q3 FY12 to 42.9% in Q4 FY12. Currently, the bank operates through 950 branches. Bank continues to strengthen its foothold in Kerala, but at the same time aims to achieve geographical diversification. During the quarter bank added 33 branches in Kerela and 82 branches across other states of the country.
  • With CAR at 16.6% and Tier-1 at 15.9%, capitalization level of the bank is high and provides immense comfort in the current environment. It should be sufficient to support 18-20% asset growth for the next three years.
  • Federal Bank provides comfort on multiple fronts - healthy asset quality, diversified loan profile, robust provisioning cover, high capitalization, and strong RoA. Thereby, maintain BUY rating and target price of Rs461.
Result table
(Rs m)
Q4 FY12
Q3 FY12
% qoq
Q4 FY11
% yoy
Total Interest Inc
  14,790
  14,668
  0.8
  11,000
  34.5
Interest expended
  (9,878)
  (9,388)
  5.2
  (6,524)
  51.4
Net Interest Inc
  4,912
  5,280
  (7.0)
  4,476
  9.7
Other income
  1,606
  1,379
  16.5
  1,412
  13.8
Total Income
  6,518
  6,660
   (2.1)
  5,888
  10.7
Operating exp.
  (2,793)
  (2,472)
  13.0
  (2,386)
  17.1
Provisions
  (155)
  (1,153)
  (86.5)
  (794)
  (80.5)
PBT
  3,570
  3,035
  17.6
  2,708
  31.8
Tax
  (1,193)
  (1,016)
  17.4
  (991)
  20.4
Reported PAT
  2,377
  2,019
  17.7
  1,717
  38.4
EPS
  13.9
  11.8
  17.7
  10.0
  38.4
   
Key  Ratios
Q4 FY12
Q3 FY12
chg qoq
Q4 FY11
chg yoy
NIM (%)
3.6
3.9
(0.4)
4.0
(0.4)
CASA (%)
27.5
28.2
(0.7)
26.9
0.7
C/D (%)
77.2
71.0
6.1
74.3
2.9
Non-interest income (%)
24.6
20.7
3.9
24.0
0.7
Cost to Income (%)
42.9
37.1
5.7
40.5
2.3
Provisions/Income (%)
2.4
17.3
(14.9)
13.5
(11.1)
RoE (%)
16.7
14.6
2.2
12.0
4.8
RoA (%)
1.6
1.4
0.2
1.3
0.3
CAR (%)
16.6
15.9
0.7
16.8
(0.1)
Gross NPA (%)
3.4
4.0
(0.6)
3.5
(0.1)
Net NPA (%)
0.4
0.7
(0.3)
0.6
(0.2)
Source: Company, India Infoline Research
 
Financial summary
Y/e 31 Mar (Rs m)
FY11
FY12
FY13E
FY14E
Total operating income
22,634
24,858
29,273
34,235
yoy growth (%)
16.6
9.8
17.8
17.0
Operating profit (pre-provisions)
14,273
15,065
17,718
20,600
Net profit
5,871
7,764
8,755
10,094
yoy growth (%)
26.4
32.3
12.8
15.3
 
 
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