Buy Federal Bank - Motilal Oswal

Federal Bank (FB IN; Mkt Cap USD1.3b, CMP Rs350, Buy)

Loans grew 8% YoY and 2% QoQ to Rs282b and deposits grew 7% YoY and 2% QoQ to Rs369b. CD ratio was sequentially stable at 76.5%.

Core retail deposits grew 11.4% YoY and 7.5% QoQ (forming ~80% deposits) and bulk deposits declined ~7% YoY (up 2.4% QoQ).

3QFY11 margins contracted 13bp QoQ led by an increase in cost of deposits and decline in yield on loans. In the 9MFY11, the bank reported NIM of 4.28%.

The bank reported its second pension-related liability of Rs1.59b of which it provided Rs85m in 3QFY11. The bank plans to amortize the liability over five years.

GNPAs in absolute terms increased 5% QoQ to Rs12b and NNPA increased 22% QoQ to Rs2.3b. Calculated PCR fell to 79% from 83% a quarter earlier.

The bank's RoA will be strong at over 1.2% and RoE is likely to be in mid-teens as growth moderates. The stock trades at FY12E P/BV of 1.1x and P/BV of 1x FY13. Maintain Buy with a target price of Rs475 (1.3x FY13E BV of Rs364).

Source : Equity Bulls

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