Federal Bank Q3FY15 Research Report By Nirmal Bang

Federal Bank: CMP Rs. 145, Target Price Rs. 183, Upside 26%

PAT Beats Expectations, One-off Impacts Asset Quality

Federal Bank’s 3QFY15 bottom-line, which grew 15% YoY, is 6% above our estimate. Loan slippage was higher at 1.9% of the loan book as against 1.5% during in the previous quarter, mainly on account of slippage of Rs1.25bn in a large account. Slippage from retail and SME (small and medium enterprise) segments eased sequentially. Provision coverage ratio was healthy at 85%. Net interest income grew 8%, which is 3% below expectations. Credit off-take grew 15% against our estimate of 20%, as the drawdown did not take place in a few loans sanctioned along with some repayments. Adjusted net interest margin (NIM) compressed 5bps sequentially on account of reversal of interest charges on slippage by a large corporate. Non-interest income grew 41% driven by healthy treasury income. Reversal of provisioning on investment depreciation and restructured assets worth Rs0.6bn helped in profitability to remain above expectations. We have retained Buy rating on Federal Bank with a target price of Rs183, valuing the stock at 1.65x P/ABV FY17E numbers.

Federal Bank-3QFY15 Result Update-16 January 2015