Federal Bank reported a decent operational performance led by healthy growth in retail business and improving operating metrics. The management has revised down its restructuring guidance from ~Rs. 3500 crore earlier to ~Rs. 1500 crore, which is encouraging, however there is a rise in proforma based NPA. Headline asset quality numbers showed improvement as GNPA and NNPA stood at 2.67% and 0.61% respectively for Q3FY21 as compared to 2.80% and 0.99% QoQ, but this was benefitted due to standstill asset classification norms. On proforma basis the GNPA number increased sequentially from 2.84% to 3.38% Total restructuring from Q2 onwards has been Rs. 1067 crore of which Rs. 859 crore is from retail. The bank has aggregate provisions worth Rs. 536 crores towards impact of Covid-19 on its book. Collection efficiency stood at 95% for the quarter which is at similar levels to previous quarter.
Valuation & Outlook
Amid a gradual pick-up in advances, focus on operational matrix through improving margins and cost control are expected to contribute to earnings growth. Improving collection efficiency (~95% in December 2020), PCR at 66% (including proforma) and potential restructuring at ~1.3% bode well. Lower valuation also makes us positive on the stock. We maintain BUY rating on the stock with revised PT of Rs. 90 by valuing the share at 1.1xFY23E ABV.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_FederalBank_Q3FY21.pdf
Shares of FEDERAL BANK LTD. was last trading in BSE at Rs.76.15 as compared to the previous close of Rs. 77.3. The total number of shares traded during the day was 3456596 in over 10536 trades.
The stock hit an intraday high of Rs. 78.8 and intraday low of 75.25. The net turnover during the day was Rs. 268199003.