Federal Bank – A Turnaround banking Story?

Federal Bank Q4 results – https://www.bseindia.com/xml-data/corpfiling/AttachLive/336cf423-d38a-4610-8947-8dab39d81847.pdf

Concerns seem to be: NIM going to 3.3% range.

Bank’s management is guiding for high teen Advances growth in FY 24. The exit ROA is around 1.25 for full financial year.

Why I continue to be bullish here:

1. Deposits continue to grow well. At about 17% YOY and 6%QOQ is one of the best.
2. The management is guiding for high teen Advances growth. I am hoping they would be able to grow at 15%+ over next 3 years while maintaining margin.
3. The P/BV is about 1.26 which is almost last 5 year average. The management is guiding that they would double networth in next 3 years with Internal profits + by raising cash.
4. The ROA is currently at 1.25 and management is guiding for 10 bps improvement YOY.
5. The retail part is growing and can help aid NIMs.

Concerns:

1. Can NIMs and ROA sustain? I am hoping they would be able to with unsecured/retail book growth.
2. Cash Dilution
3. Will they be able to grow Advances / Deposits at same pace.
4. Too much concentration in Kerala / Bulk of deposits coming from Gulf region.

Can one of VPs build a bear case in this business?

Disclosure: Invested.