Federal Bank Q2FY18 Result Update - Rating - HOLD - Arihant Capital Markets

For the quarter ended Q2 FY18 Federal bank reported steady profitability. The net profit stood at Rs 264 cr vs. Rs 201 cr in the corresponding quarter of the previous year and Rs 210 cr in the sequential quarter.

NII:

The bank's top-line performance was up as net interest income increased by 24% to Rs 899 crs compared to Rs 726 crs YoY & Rs 801 crs QoQ. Other income rose by 9.6% to Rs 287 crs YoY. C/I ratio for the bank dropped to 50.83% vs. 52.42% YoY and stood stable sequentially at 50.62%. NIM's stood steady at 3.31% vs. 3.32% in corresponding quarter of previous year and expanded sequentially from 3.13%.

Advances and Deposits:

Gross advances for the quarter under review grew by 26% YoY and deposits grew by 12.6% YoY. CASA ratio stood at 32.93% against 31.04% YoY and 33.44% QoQ. Retail advances grew by 17% YoY, SME advances grew by 18% YoY and Agriculture advances grew by 24% YoY.

Asset quality:

Quality of assets improved during the quarter with gross NPA's at 2.39 vs. 2.78 in the corresponding quarter of previous year. Gross NPA's in the previous quarter stood at 2.42. Fresh accretion during the quarter increased to Rs 284 crs vs. Rs 266 crs in the corresponding quarter of previous year. Major fresh accretion were from agri and retail segment which increased from Rs 26 cr to Rs 51 cr YoY and from Rs 63 cr to Rs 106 cr respectively, while accretion from SME segment dropped to Rs 135 cr vs. Rs 107 cr. PCR for the quarter stood at 70%.

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 with continuous growth in active digital user and increasing FedMobile transaction volume. At CMP stock trades at P/ABV multiple of 2.4x on FY 19E. We have valued the stock at P/ABV multiple of 2.6x & arrived at fair value of Rs 139 per share and have 'HOLD' rating.

Shares of FEDERAL BANK LTD. was last trading in BSE at Rs.124 as compared to the previous close of Rs. 126.3. The total number of shares traded during the day was 328441 in over 1484 trades.

The stock hit an intraday high of Rs. 126.7 and intraday low of 123.65. The net turnover during the day was Rs. 41123468.

Source : Equity Bulls

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