Federal Bank - Q3FY21 First Cut - ICICI Direct

CMP - Rs. 77, Mcap - Rs. 15530 crore

Healthy operating performance, asset quality a mixed bag.

Q3FY21 Earnings Summary

- Federal bank posted mixed result on the asset quality front as GNPA and NNPA (headline) declined by 13 bps and 39 bps QoQ to 2.71% and 0.60%, however, on a proforma basis GNPA and NNPA ratio increased by ~54 bps and 15 bps sequentially to 3.38% and 1.14%. Bank restructured Rs. 663 crore worth of loans in Q3FY21 and Rs. 376 crore thereafter till 16 Jan 2021, taking total restructured exposure at Rs. 1039 crore or ~80 bps of advances. Most of the restructuring came in from the retail assets. Management has reduced its restructuring guidance from ~Rs. 3500 crore earlier to ~Rs. 1500-1600 crore for FY21E. Accounts worth Rs. 863 crore (net basis) slipped into the NPA category on proforma basis.

- The bank currently had provisions worth Rs. 587 crore for covid related impact in previous quarter of which Rs. 51 crore has been used in Q3FY21 for creating RBI mandated provision for restructured advances for Covid related stress, so now the bank has provisions worth Rs. 536.7 crore for Covid-19 impact, which is ~50 bps of loans.

- Operating performance of the bank was healthy with strong NII growth of 24.4% YoY and 4.1% QoQ to Rs. 1437 crore, this was on the back of 9 bps QoQ rise in the net interest margins. NIM expansion was driven by steeper decline in cost of deposits than the yields. Other income was up by 18% YoY to Rs. 482 crore, in which fee income was up by 15% YoY and 24% QoQ, while treasury income jumped by 62% YoY.

- Cost-to-income ratio for the bank increased from 46.7% to 49.8% QoQ, driven by 7.8% sequential rise in staff cost which could be due to normalization of business activities.

- Provisions for the quarter declined by 29% QoQ to Rs. 421 crore , however, still remained at elevated levels on yearly basis. The bank posted a net profit of Rs. 404 crore, which was better than our estimate and up 31.4% QoQ.

- On the business front, loan growth was modest and in-line with the industry at 6% YoY to Rs. 128180 crore. Of this, retail segment showed healthy growth of 16% and agri segment was up by 24%. Wholesale book declined by ~4% YoY. The management has indicated a loan book growth of 8-10% for FY21E indicating better growth in next quarter. Deposits were up by 11.8% YoY aided by strong CASA growth of 22.5% YoY, as a result CASA ratio for the quarter improved by 302 bps YoY and 80 bps QoQ to 34.48%.

We will be coming out with a detailed report soon.

Shares of FEDERAL BANK LTD. was last trading in BSE at Rs.77.3 as compared to the previous close of Rs. 75.4. The total number of shares traded during the day was 4426826 in over 12185 trades.

The stock hit an intraday high of Rs. 77.95 and intraday low of 74.6. The net turnover during the day was Rs. 337742461.

Source : Equity Bulls

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