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Prabhudas Lilladher
Federal Bank (Buy)
CMP: ₹70.10
Target: ₹80
Federal Bank reported a weak Q1FY16 as lumpy slippages from corporate portfolio (metal sector) resulted in 23 per cent/30 per cent rise in GNPL/NNPLs and drove sharp increase in provisioning. Federal Bank reported 11 per cent y-o-y growth in total revenues led by 24 per cent y-o-y growth in other income (19 per cent y-o-y growth in core fees), while net interest income growth remained muted. The bank incurred interest reversal of ₹16 crore on account of higher slippages during the quarter, thus, driving 19 bps q-o-q fall in reported NIMs despite modest sequential improvement in CASA mix. Management guided for margins to sustain around 3.2 per cent for FY16. Fee income, however, fared better but higher opex (₹18 crore one-off charge) resulted in modest 4.5 per cent y-o-y growth in PPOP. Though management sounded cautious on asset quality, the bank expects trends to improve and guided for controlled credit cost of 55-60 bps for FY16E. We cut our earnings and loan growth estimates and revise our PT to ₹80 (from ₹83).
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