Technology

In Q1FY17, the bank reported 19% loan growth, which further accelerated to 27%
in Q2FY17, backed by 47% jump in corporate loan book. Retail loans also were
strong. Gold loan, which had been under pressure and also saw degrowth in
previous quarters, saw a comeback thus contributing to the growth. While the
process of demonetization is likely to have an impact and loan growth might
slow down in Q3 & Q4FY17, we expect Federal Bank to bounce back to 17-18%
YoY loan growth trajectory in FY18. Federal Bank has already recognized large part of the
troubled assets as NPAs. While there could be incrementally some degree of
stress on the SME book, we believe gradually there should be overall
improvement in the asset quality backed by the corporate loan book. At the
CMP, the stock is trading at 1.4x it FY18 Adj BV. We upgrade the stock to BUY
with a target price of Rs85.

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