Federal Bank Ltd - Q3FY23 Result Update - YES Securities

Posted On : 2023-01-17 21:17:03( TIMEZONE : IST )

Federal Bank Ltd - Q3FY23 Result Update - YES Securities

Flagged as a top pick in 2021, FED marches on

Result Highlights

✓ Asset quality: Gross slippages amounted to Rs 4.12bn (annualized slippage ratio of 1.0%) and recoveries and upgrades were healthy at Rs 2.87bn

✓ Margin picture: NIM at 3.49% was up 19 bps QoQ as yield on advances moved up faster than cost of deposits

✓ Asset growth: Advances grew 4.3%/19.1% QoQ/YoY driven sequentially by Agri, Business Banking, CV/CE and Corporate loans

✓ Opex control: Total opex rose 4.9%/9.7% QoQ/YoY, staff expenses rose/fell 8.8% /-3.8% QoQ/YoY and other expenses rose 1.9%/24.7% QoQ/YoY

✓ Fee income: Fee income rose 4.0%/28% QoQ/YoY, sequentially driven by Card fees, Para Banking and general service charges.

Our view - Flagged as a top pick in 2021, FED marches on Management enhanced RoA guidance for FY23 and FY24, with no single lever expected to be the dominant driver for RoA expansion:While the bank is now expected to deliver full year FY23 RoA at 1.25% or slightly better, the FY24 RoA is expected to be 10 bps higher than FY23 levels. Management stated that RoA improvement would not be dominated by any one single lever. The FY24 NIM guidance stands at 335-340 bps, which is the same as what is now expected for full year FY23. This is higher than the 330 bps guided for (for FY23) during the 2QFY23 result call.

Management guided for loan growth to be in the high-teens for FY24, which is similar to what they had flagged for FY23: While the new guidelines for fintech lending somewhat held back gold loans, management stated that gold loans could grow at the pace of 25%. They further stated that new lending segments, commercial vehicle finance, credit cards and microfinance could double from current levels of about Rs 60-70 bn.

The guidance for cost to income ratio was 47.5-48% for FY24, with many moving parts: It has been observed that wage hikes have ranged between 10-15% in the past and a 15% hike has been assumed in making provisions. The wage provision impact amounts to about Rs 200mn per month and is effective 1st November 2022. The bank has added more than 60 branches so far this financial year and should add about 75 in total for the year. The bank will then add about 80-90 branches per year for 2 years, taking the 3-year total to about 250 branches.

We maintain 'Buy' rating on FED with a revised price target of Rs 185: We had flagged FED as one of our top 3 bank picks in our Sector Initiation Report dated June 2021. We value the standalone bank at 1.5x FY24 P/BV for an FY23E/24E/25E RoE profile of 14.4/15.2%/15.7%. We assign a value of Rs 8.7 per share to the subsidiaries, on SOTP.

Link to the report

Shares of The Federal Bank Limited was last trading in BSE at Rs. 137.95 as compared to the previous close of Rs. 140.25. The total number of shares traded during the day was 1433550 in over 10376 trades.

The stock hit an intraday high of Rs. 142.95 and intraday low of 135.35. The net turnover during the day was Rs. 199025160.00.

Source : Equity Bulls


TheFederalBank INE171A01029 Q3FY23 ResultUpdate YESSecurities