Federal Bank Q1 FY18 Result Update Rating - HOLD - Arihant Capital Markets

For the quarter ended Q1 FY18 Federal bank reported steady profitability. The net profit stood at Rs 210 cr vs. Rs 167 cr in the corresponding quarter of the previous year and Rs 256 cr in the sequential quarter.

NII:

The bank's top-line performance was up as net interest income increased by 16% to Rs 801 crs compared to Rs 693 crs YoY & Rs 842 crs QoQ. Other income rose by 39% to Rs 392 crs YoY. C/I ratio for the bank dropped to 50.62% vs. 54.19% YoY and decreased sequentially by 54 bps from 51.16%. NIM contracted from 3.28% in corresponding quarter of previous year to 3.13% and 29bps sequentially from 3.42%.

Advances and Deposits:

Gross advances for the quarter under review grew by 29% YoY and deposits grew by 19% YoY. CASA ratio stood at 33.44% against 32.83% YoY and 35% QoQ majorly due to expansion on retail front. Retail advances grew by 27.82% YoY, SME advances grew by 9.54% YoY and large corporate advances grew by 45.59% YoY.

Asset quality:

Quality of assets improved during the quarter with gross NPA's at 2.4 vs. 2.9 in the corresponding quarter of previous year. Gross NPA's in the previous quarter stood at 2.3. Fresh accretion during the quarter increased to Rs 425 crs vs. Rs 244 crs in the corresponding quarter of previous year. Major fresh accretion were from agri, retail & corporate segment which increased from Rs 37 cr to Rs 169 cr QoQ while accretion from SME segment dropped to Rs 114 cr vs. Rs 122 cr. PCR for the quarter stood at 70.26%.

Valuation:

Federal Bank reported consistent performance backed by NII growth and better operational efficiency. Asset quality stood steady. We expect the bank to continue trend with more focus on digitalization and distribution. At CMP stock trades at P/ABV multiple of 2.1x on FY 19E. We have valued the stock at P/ABV multiple of 2.3x & arrived at fair value of Rs 124 per share and have 'HOLD' rating.

Shares of FEDERAL BANK LTD. was last trading in BSE at Rs.113.3 as compared to the previous close of Rs. 115.05. The total number of shares traded during the day was 357598 in over 1375 trades.

The stock hit an intraday high of Rs. 114.95 and intraday low of 113.1. The net turnover during the day was Rs. 40761770.

Source : Equity Bulls

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