Comments
Reliance Securities
Federal Bank (Buy)
CMP: ₹109.15
Target: ₹150
We believe that Federal Bank will continue to deliver further improvement in operational performance led by improving loan book growth along with changing portfolio-mix. The Bank continues to witness moderation in SMA-2 balance, which clearly suggests fresh slippage during 1HFY18 was more of a one-off event. Notably, the Bank is gradually coming out of the scenario marked with higher provisioning and continued stress on asset quality for the last few quarters.
The Bank envisages loan book to grow by 20-25 per cent in FY18 led by strong growth in Retail and SME segments. However, it will continue to focus on better opportunities in corporate segment as well. Further, the Bank expects NIM at about 3.25 per cent level in the next 4-5 quarters.
Looking ahead, we expect the strong traction in earnings to continue owing to robust growth in loan book, moderate credit cost and healthy margins.
We reiterate our ‘buy’ recommendation on the stock with an upward revised Target Price of ₹150 based on 2.3x FY19E adjusted book value.
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