Federal Bank Research Report By Axis Securities

Federal Bank (FB) reported strong earnings at Rs 206 cr which grew by 26% YoY (up 2% QoQ). These strong earnings were mainly on account of strong loan growth and improvement in margins. Loan growth improved to 32% YoY (8% QoQ) from 27% in Q2FY17 on the back of increase in corporate loan (up 53% YoY) and Retail +Agri loan book (up 23% YoY).

Outlook

We expect advance growth to improve to 20% (earlier 17%) for FY17E led by growth in Corporate, SME and Retail portfolio. Going forward, management’s focus would be on containing slippages from its corporate book, reduce its cost of borrowing and also increase lending towards retail and SME. Management have identified and addressed all stressed accounts and guided for few restructured accounts of Rs. 257 cr under watch list. We value FB at FY18E P/ABV multiple of 1.9x to arrive at target price of Rs 96/share and retain BUY rating on the stock.