Comments
Prabhudas Lilladher
Federal Bank (Buy)
CMP: ₹89.45
Target: ₹128
Federal Bank’s earnings disappointed on high provisions and lower top line on back of higher slippages of ₹872 crore (PL estimate: ₹260 crore). Corporate slippages dominated the pool, but majority were from the restructured portfolio and some weak SMA–2 accounts across retail/SME/Corporate were also classified as NPAs.
Operationally bank continued to see strong loan growth of 26 per cent y-oy but net interest margins were affected 10 bps lost from accelerated stress recognition and was also was under pressure sequentially.
We believe, some stress still remains in balance sheet which will be recognised in FY19 with credit cost remaining high [ageing + PCR (private client resources) enhancement], but strong loan rowth (better quality) will help steady NIMs and recovery in PPOP (pre-provision operating profit).
Retain ‘buy’ with revised target price of ₹128 (reduced from ₹134) based on 2.0x Mar FY20E (rolled from September FY20).
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