1QFY2018 Result Update | Banking
August 2, 2017
Federal Bank
BUY
CMP
`115
Performance Highlights
Target Price
`140
Particulars (` cr)
1QFY18 4QFY17
% chg (qoq)
1QFY17
% chg (yoy)
Investment Period
12 Months
NII
800.7
842.4
(5.0)
692.7
15.6
Pre-prov. profit
557.9
549.2
1.6
425.9
31.0
Stock Info
PAT
210.2
256.6
(18.1)
167.3
25.6
Sector
Banking
Source: Company, Angel Research
Market Cap (` cr)
22,383
Federal Bank’s 1QFY18 results were in line with expectations. PAT growth of
Beta
1.5
25.6% YoY, backed by strong 29% growth in loan book were the main highlights
during the quarter.
52 Week High / Low
122/61
Avg. Daily Volume
18,66,060
Business growth remained buoyant: Loan growth momentum continued to remain
strong up 29.1% YoY. After a 26.2% growth in FY17, this is a commendable job
Face Value (`)
2
by the bank. SME grew by 10% YoY, Retail+ Agri grew by 40% YoY, while
BSE Sensex
32,575
corporate segment grew by 46%. Deposit growth was at 18.1% YoY, though the
Nifty
10,114
growth rate was lower than what we saw in Q4FY17, overall it can be considered
Reuters Code
FED.BO
a decent growth on a higher base. CASA continued to have fairly strong growth,
Bloomberg Code
[email protected]
up 20.3% and CASA ratio improved to 33.4% vs 32.6% QoQ.
NIM dropped sequentially due to higher interest reversal: While cost of funds
Shareholding Pattern (%)
have a downward bias, during the quarter the slippages went up again, due to
Promoters
0.0
one large account and hence the interest reversal impacted NIM, down 29 bps
QoQ to 3.13%. However, we expect NIM to rebound in the coming quarters.
MF/ Banks / Indian Fis
33.9
Further cost of funds can also see easing going ahead which will support the NIM.
FII/ NRI/ OCBs
39.3
Asset quality marginally weakened: Slippages during Q1 stood at `425 cr,
Indian Public / Others
26.8
substantially higher than `244cr in Q4FY17, as one large corporate account
slipped into NPAs. However, the bank had earlier been maintaining that few large
Abs. (%)
3 m
1 yr
3 yr
accounts remain sticky and were under pressure, so this has not been a negative
Sensex
8.7
16.1
25.6
surprise and incremental slippages could be much lower going ahead. Though
Federal Bank
7.5
77.0
92.0
slippages remained higher in absolute term, asset base had a strong growth and
hence there was only a 9 bps rise in GNPAs to 2.42% vs 2.33% QoQ.
Outlook and valuation: After exhibiting meaningful improvement in FY17 both in
3-year price chart
terms of asset quality and earnings, the beginning of FY18 has, remained
2,500
subdued for the bank, however as we have mentioned earlier, large part of the
2,000
stress in the loan book is over for Federal Bank and barring some minor hiccups
1,500
we don’t expect material deterioration in asset quality. We remain positive about
the banks performance going ahead. At the CMP, the stock is trading at 1.8x it
1,000
FY19 Adj BV. We maintain BUY on the stock with a target price of `140.
500
Key financials (standalone)
0
Y/E March (` cr)
FY2016
FY2017
FY2018E
FY2019E
NII
2,504
3,053
3,529
4,456
% chg
5.2
21.9
15.6
26.3
Net profit
476
831
1,041
1,469
Source: Company, Angel Research
% chg
-52.7
74.7
25.3
41.0
NIM (%)
2.9
3.0
2.8
3.1
EPS (`)
2.8
4.8
5.4
7.6
Siddharth Purohit
P/E (x)
41.6
23.8
21.4
15.2
P/ABV (x)
2.8
2.5
2.0
1.8
022-3935 7800 Ext: 6872
RoA (%)
0.5
0.8
0.8
1.0
[email protected]
RoE (%)
5.9
9.3
8.5
11.0
Source: Company, Angel Research; Note: CMP as of August 1, 2017
Please refer to important disclosures at the end of this report
1
Federal Bank | 1QFY2018 Result Update
Exhibit 1: Quarterly Income Statement ( Standalone)
Particulars (` cr)
Q1FY16
Q2FY16
Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18
% YoY
% QoQ
Interest earned
1,914
1,902
1,903
2,027
2,014
2,066
2,281
2,316
2,324
15.4
0.4
Interest expenses
1,308
1,294
1,298
1,341
1,321
1,340
1,490
1,474
1,523
15.3
3.4
Net interest income
605
608
605
686
693
726
791
842
801
15.6
(5.0)
Non Interest Income
193
182
183
227
237
262
263
282
329
38.8
16.7
Operating income
799
791
789
913
930
988
1,055
1,125
1,130
21.5
0.5
Operating expenses
431
454
463
518
504
513
580
575
572
13.5
(0.6)
Pre-prov. profit
367
337
325
395
426
475
475
549
558
31.0
1.6
Provisions & cont.
153
87
75
389
168
168
159
123
236
40.3
92.7
PBT
214
249
250
6
257
307
316
427
321
24.9
(24.6)
Prov. for taxes
73
88
88
-4
90
105
110
170
111
23.5
(34.5)
PAT
141
161
163
10
167
201
206
257
210
25.6
(18.1)
EPS (`)
1.6
0.9
0.9
0.1
1.0
1.2
1.2
1.5
1.1
11.4
(27.2)
Effective tax rate (%)
34.0
35.3
35.0
-74.5
35.0
34.3
34.9
31.0
34.6
Source: Company, Angel Research
Loan growth further accelerated: The loan growth momentum of the bank
continued to remain strong. After a 26.2% growth in FY17 the beginning of the
year has been strong with a 29.1% growth during Q1FY18. While SME segment
had a moderate growth of 10% YoY, Retail+ Agri had a strong 40% YoY growth.
Lending to corporate further accelerated with a 46% growth.
Deposit growth also remained fairly decent: Deposit growth was at 18.1% YoY,
though the growth rate was lower than what we saw in Q4FY17, overall it can be
considered a decent growth on a higher base. The low cost CASA continued to
have fairly strong growth, up 20.3% and CASA ratio improved to 33.4% vs 32.6%
QoQ. In Q3FY17, post demonetization the bank had witnessed a strong 360 bps
improvident in its CASA ratio, which came down by 210 bps in Q4FY17, due to
partial outflow of the deposits. Overall we expect CASA ratio to gradually move up
for Federal Bank.
Exhibit 2: Loan growth momentum was strong
Exhibit 3: Deposit growth also remained strong
90,000
35
1,20,000
30.0
32.0
80,000
26.2
29.1
30
23.4
18.1
27.2
1,00,000
23.3
25.0
70,000
17.0
19.3
25
12.5
60,000
80,000
20.0
50,000
20
60,000
15.0
40,000
15
30,000
40,000
10.0
10
20,000
20,000
5.0
5
10,000
-
0
-
0.0
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Loans (` cr)
% Growth YoY
Deposits (` cr)
% Growth YoY
Source: Company, Angel Research
Source: Company, Angel Research
August 2, 2017
2
Federal Bank | 1QFY2018 Result Update
NIM dropped sequentially due to higher interest reversal: Though cost of funds
continued to have a downward bias, during the quarter the slippages went up
again, due to one large account and hence the interest reversal impacted the NIM
, which dropped 29 bps QoQ to 3.13%. However, we expect NIM to rebound in
the coming quarters. Further cost of funds can also see easing going ahead which
will support the NIM. Compression in NIM resulted in a subdued 15.6% YoY
growth in NII, compared to 22.8% growth reported in Q4FY17.
Exhibit 4: NIM decline due to higher slippages
Exhibit 5: NII growth moderated (` cr)
1000
3.5%
3.42%
861
900
842
3.4%
791
3.31%
3.32%
800
726
3.28%
693
3.3%
700
600
3.2%
3.13%
500
3.1%
400
300
3.0%
200
2.9%
100
2.8%
0
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 6: PPP Growth remained strong
Exhibit 7: PAT impacted due to higher provisions
600
50
300
257
45
500
250
40
210
201
206
35
400
200
167
30
300
25
150
20
200
100
15
10
100
50
5
0
0
0
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Operating Profit ( Rs Cr )
% Growth YoY
PAT ( Rs Cr )
Source: Company, Angel Research
Source: Company, Angel Research
August 2, 2017
3
Federal Bank | 1QFY2018 Result Update
Asset quality marginally weakened: Slippages during Q1 stood at `425 cr,
substantially higher than `244cr in Q4FY17, as one large corporate account
slipped into NPAs. However, the bank had earlier been maintaining that few large
accounts remain sticky and were under pressure, so this has not been a negative
surprise and incremental slippages could be much lower going ahead. Though
slippages remained higher in absolute term, asset base had a strong growth and
hence there was only a 9 bps rise in GNPAs to 2.42% vs 2.33% QoQ.
Exhibit 8: Marginal rise in GNPAs (%)
Exhibit 9: Slippages went up sequentially (` Cr )
3.5
450
425
2.9
3.0
2.8
2.8
400
2.4
2.3
2.5
350
280
274
300
266
2.0
1.7
244
1.6
1.6
250
1.4
1.5
1.3
200
1.0
150
100
0.5
50
-
0
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
GNPAs (%) NNPAs (%)
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 10: Slippages Ratios (%)
Exhibit 11: Restructured Loans (%)
2.5
2.3
4
3.2
3.2
3.0
2.0
2.8
3
1.9
2.0
1.7
3
2.2
1.4
1.5
2
2
1.0
1
0.5
1
0.0
0
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Source: Company, Angel Research
Source: Company, Angel Research
August 2, 2017
4
Federal Bank | 1QFY2018 Result Update
Outlook and valuation
After exhibiting meaningful improvement in FY17 both in terms of asset quality
and earnings, the beginning of FY18 has, remained subdued for the bank,
however as we have mentioned earlier, large part of the stress in the loan book is
over for Federal Bank and baring some minor hiccups we don’t expect material
deterioration in asset quality. We remain positive about the banks performance
going ahead. At the CMP, the stock is trading at 1.8x it FY19 Adj BV. We maintain
BUY on the stock with a target price of `140
August 2, 2017
5
Federal Bank | 1QFY2018 Result Update
Exhibit 12: Income Statement ( Standalone)
Y/E March (` cr)
FY15
FY16
FY17
FY18E
FY19E
Net Interest Income
2,380
2,504
3,053
3,529
4,456
- YoY Growth (%)
6.8
5.2
21.9
15.6
26.3
Other Income
878
786
1,044
1,367
1,474
- YoY Growth (%)
26.6
(10.5)
32.8
30.9
7.8
Operating Income
3,259
3,291
4,097
4,896
5,930
- YoY Growth (%)
11.5
1.0
24.5
19.5
21.1
Operating Expenses
1,631
1,867
2,172
2,590
3,071
- YoY Growth (%)
17.2
14.5
16.3
19.2
18.6
Pre - Provision Profit
1,628
1,424
1,925
2,306
2,860
- YoY Growth (%)
6.4
(12.5)
35.2
19.8
24.0
Prov. & Cont.
107
704
618
798
668
- YoY Growth (%)
(66.5)
559.6
(12.2)
29.0
(16.3)
Profit Before Tax
1,521
720
1,307
1,509
2,192
- YoY Growth (%)
25.5
(52.7)
81.5
15.5
45.3
Prov. for Taxation
515
244
476
467
723
- as a % of PBT
38.1
(52.6)
95.0
(1.7)
54.7
PAT
1,006
476
831
1,041
1,469
- YoY Growth (%)
19.9
(52.7)
74.7
25.3
41.0
Source: Company, Angel Research
Exhibit 13:
Y/E March (` cr)
FY15
FY16
FY17
FY18E
FY19E
Share Capital
171
344
345
388
388
Reserves & Surplus
7,567
7,747
8,598
11,862
12,964
Net Worth
7,738
8,091
8,942
12,250
13,352
Deposits
70,825
79,172
97,665
1,14,136
1,35,821
- Growth (%)
18.6
11.8
23.4
16.9
19.0
Borrowings
2,308
2,177
5,897
5,707
4,075
- Growth (%)
-59.4
-5.7
170.9
-3.2
-28.6
Other Liab & Prov.
1,979
1,991
2,473
2,405
3,396
Total Liabilities
82,850
91,430
1,14,977
1,34,498
1,56,644
Cash balances
3,380
3,775
4,577
5,136
6,112
Bank balances
1,400
1,645
2,876
2,283
2,716
Investments
20,569
22,217
28,196
30,817
33,955
Advances
51,285
58,090
73,336
90,025
1,09,831
- Growth (%)
18
13
26
23
22
Fixed Assets
467
520
489
530
550
Other Assets
5,750
5,183
5,503
5,707
3,479
Total Assets
82,850
91,430
1,14,977
1,34,498
1,56,644
Source: Company, Angel Research
August 2, 2017
6
Federal Bank | 1QFY2018 Result Update
Exhibit 14: Key Ratios ( Standalone)
Y/E March
FY15
FY16
FY17
FY18E
FY19E
Profitability Ratios (%)
NIMs
3.0
2.9
3.0
2.8
3.1
Cost to Income Ratio
50.0
56.7
53.0
52.9
51.8
RoA
1.3
0.5
0.8
0.8
1.0
RoE
13.0
5.9
9.3
8.5
11.0
B/S ratios (%)
CASA Ratio
30.4
32.5
34.0
35.0
0.0
Credit/Deposit Ratio
72.4
73.4
75.1
78.9
80.9
CAR
15.5
13.9
11.9
11.1
10.6
- Tier I
14.8
13.4
11.4
10.7
10.3
Asset Quality (%)
Gross NPAs
2.0
2.8
2.3
1.9
1.3
Net NPAs
0.7
1.6
1.3
1.0
0.7
Slippages
1.8
3.6
1.8
1.6
1.0
Loan Loss Prov./Avg. Assets
0.2
1.2
0.8
0.9
0.6
Provision Coverage
84.7
72.2
70.4
64.7
43.0
Per Share Data (`)
EPS
11.7
2.8
4.8
5.4
7.6
BVPS
90.3
47.1
52.0
63.1
68.8
ABVPS
86.0
41.5
46.5
58.6
65.1
DPS
1.1
0.7
1.1
1.3
2.3
Valuation Ratios
PER (x)
9.8
41.6
23.8
21.4
15.2
P/ABVPS (x)
1.3
2.8
2.5
2.0
1.8
Dividend Yield
1.0
0.6
1.0
1.1
2.0
DuPont Analysis (%)
FY15
FY16
FY17
FY18E
FY19E
Interest Income
9.4
8.9
8.4
8.1
8.2
Interest Expenses
6.4
6.0
5.5
5.2
5.1
NII
3.0
2.9
3.0
2.8
3.1
Non Interest Income
1.1
0.9
1.0
1.1
1.0
Total Revenues
4.1
3.8
4.0
3.9
4.1
Operating Cost
2.1
2.1
2.1
2.1
2.1
PPP
2.1
1.6
1.9
1.8
2.0
Total Provisions
0.1
0.8
0.6
0.6
0.5
PreTax Profit
1.9
0.8
1.3
1.2
1.5
Tax
0.7
0.3
0.5
0.4
0.5
ROA
1.3
0.5
0.8
0.8
1.0
Leverage
10.2
10.8
11.5
10.2
10.9
RoE (%)
13.0
5.9
9.3
8.5
11.0
Source: Company, Angel Research
August 2, 2017
7
Federal Bank | 1QFY2018 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Federal Bank
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
August 2, 2017
8