Federal Bank - 2QFY2013 Result Update - Angel Broking

During 2QFY2013, Federal Bank reported an operating profit decline of 3.2% yoy. However 57.8% yoy lower provisioning expenses aided the bank to post a netprofit growth of 12.5% yoy to Rs.215cr.

NIMs improve sequentially; Asset quality pressure easing: The bank witnessed a modest growth of 8.0% yoy in advances, while the growth in deposits was subdued at 4.8% yoy. Within advances, retail and SME & agri book registered a healthy growth of 17.6% and 15.4% yoy, respectively, while the corporate book de-grew by 1.7% yoy. On the deposits front, the bank witnessed a strong growth of 23.9% yoy in its current deposits, while growth in savings deposits was healthy at 15.5% yoy. Consequently, CASA ratio improved by 5bp sequentially and 297bp yoy to 28.7%. The reported NIMs for the bank improved by 16bp qoq to 3.6%, as yields on advances and investments improved sequentially by 23bp and 15bp, while the increase in cost of deposits was limited to 6bp. Other income excluding treasury remained flat on a yoy basis, on account of lower recoveries (Rs.10cr compared to Rs.14cr in 2QFY2012) and a sharp decline of 35.5% yoy in forex income. Growth in fee income was robust at 15.0% yoy. The bank's slippages for 2QFY2013 stood at Rs.144cr (retail - Rs.42cr, SME - Rs.90cr, Agri - Rs.13cr and corporate - nil). Annualized slippage rate at 1.5% came in much lower compared to the quarterly average of 4.0% since 1QFY2011. PCR for the bank continues to remain strong at 82.9%. The bank restructured accounts worth Rs.230cr in 2QFY2013 taking the total outstanding restructured book to Rs.2,538cr (Rs.1,956cr of standard restructured assets). The bank has exposure of Rs.200cr to NAFED, which remains a servicing account. The bank remain watchful of 8-10 accounts amounting to Rs.700-800cr (including NAFED).

Outlook and valuation: The bank has been expanding its branch network and increasing its business profile at a strong pace which should lead to healthy growth in its balance sheet over the next two years. Further with the asset quality of the bank seeing improvement, we expect lower provisioning expenses in FY2013 than in FY2012. Although the de-regulation of NRE TD deposits has not had any significant effect on the low cost deposit base of the bank till now, we remain wary of the possible incremental higher costs due to shift from NRE SBs to NRE TDs. Even the stock has surged significantly and now trades at 1.2x FY2014E P/BV. We recommend a Neutral rating on the stock.

Source : Equity Bulls

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