Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities.
Federal Bank (FB) reported its highest-ever quarterly earnings, largely on the back of strong loan growth (+20% YoY), margin expansion (+19bps QoQ), sustained fee traction and lower credit costs (38bps annualised). FB benefitted from a timing difference in asset/deposit repricing, offsetting higher employee opex (provision for wage revision) and higher provisions for security receipts as per the RBI circular. FB is confident of leveraging its differentiated FinTech ecosystem partnerships to clock market share gains in high-yield segments and driving further business productivity on both sides of the balance sheet. FB appears to be on track to deliver its targeted RoA of 1.25% for FY23 and is likely to clock a further 10bps RoA accretion over the next couple of years as the bank further calibrates the mix of high-yielding loans. We tweak our FY23E/FY24E earnings estimates to factor in lagged deposit repricing, offset by marginally lower provisions; maintain BUY, with a TP of INR175 (1.6x Sep-24 ABVPS).
Conducive pricing environment translates into better NIMs: FB reported a sequentially strong NII growth with multi-quarter high NIMs at 3.5% (+19bps QoQ), aided by a conducive pricing environment. Loan growth (+19% YoY) was balanced across segments, including a sizeable contribution from working capital loans in the corporate book. Within retail, high-margin segments-PL, CC, CV/CE, MFI-sustained strong double-digit growth on a low base. These categories, organically and by way of FinTech partnerships, are likely to begin incrementally accounting for a meaningful mix of the loan book by FY25.
Benign asset quality: GNPA (2.4%) was largely stable QoQ as slippages from the restructured book (retail and wholesale) were offset by recoveries. Given a strong PCR (~70%), we build in ~53/63bps of credit costs for FY23/FY24.
Operational efficiencies to complement FinTech partnerships: We believe that FB's ability to leverage its FinTech partnerships to build an NTB customer franchise and deepen its ETB relationships alongside a calibrated distribution ramp-up places the bank ahead of its peers to deliver sustained productivity and efficiency gains. We remain constructive on FB's ability to further dial up and monetise such partnerships and build scalable profit pools.
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.