Federal Bank is likely to come out closer/better to the best-in-class players on impairment ratios.

Chirag Batavia • 24 May 2021

CLOSED

Federal Bank

  • Federal Bank is likely to come out closer/better to the best-in-class players on impairment ratios. Excelled in the first year of Covid impact with lower slippages, restructuring and use of ECLGS.

  • It reported ~60% yoy earnings growth primarily on account of lower provisions (~55% yoy decline). Slippages mere at ~2% and restructured loans at 1.1%. In Q4FY21, Deposit growth held up much better with overall deposits increasing ~13% yoy.

  • Gold loan growth was sharp at 70% yoy with loan book crossing ~Rs15800 cr. Gold loan portfolio growth benefitted by increase in gold prices and relaxations in LTV. The bank aims to grow gold loan book by 30-40% yoy.

  • We maintain BUY rating with a Fair Value of Rs100. At our FV, we are valuing the bank at 1.1X book and 7X FY23 EPS for RoEs (return on equity) steadily moving closer to 12-14% levels. It remains our preferred mid-tier bank pick.

  • A key challenge has been forecasting a return profile closer to the best players.

Federal Bank (FB): BUY

Dated: 24 th May 2021

CMP: Rs.85

Fair Value: Rs.100

Potential Upside: 17.6%
Market Cap: Rs.15,697 Cr
Time Frame: 12 months



Note: The above is a brief note on the company, based on the inputs of KIE research report dated 17 th May 2021, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental .      Disclaimer: http://bit.ly/2n5AxIE


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