Federal Bank - Q2FY21 Result Update - ICICI Securities

Federal Bank reported a healthy operational performance led by stable business growth. The management has indicated restructuring would be at 2.5-3% of advances that remains reasonable. Provisions for the quarter were elevated at Rs. 592 crore (~48 bps of advances), which included contingent provision of Rs. 402 crore. Total contingent provisions held as on Q2FY21 were at Rs. 588 crore (~48 bps of advances). PCR for Q2FY21 improved to 64.65% vs. 58.54% in Q1FY21. On the back of standstill asset quality norms, slippages remained muted at Rs. 3 crore (slippages would have been Rs. 237 crore without the standstill asset norms). Subsequently, GNPA, NNPA dipped 23 bps, 60 bps QoQ to 2.84%, 0.99%, respectively. In September 2020, collection increased to 95% (retail -91%, corporate - 99%).

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 September 2020), PCR at 65% and potential restructuring at ~3% bode well. Healthy fundamentals and lower valuation makes us positive on the stock. Thus, we upgrade the stock from HOLD to BUY with a target price of Rs. 60 per share, valuing the stock at ~0.8x FY22E ABV.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_FederalBank_Q2FY21.pdf

Shares of FEDERAL BANK LTD. was last trading in BSE at Rs.52.25 as compared to the previous close of Rs. 51.75. The total number of shares traded during the day was 3987594 in over 6589 trades.

The stock hit an intraday high of Rs. 53.45 and intraday low of 51.45. The net turnover during the day was Rs. 209739414.

Source : Equity Bulls

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