Buy Federal Bank; target Rs 510: Motilal Oswal

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Buy Federal Bank; target Rs 510: Motilal Oswal

Motilal Oswal is bullish on Federal Bank and has recommended buy rating on the stock with a target price of Rs 510 in its January 24, 2012 research report.

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Motilal Oswal is bullish on Federal Bank and has recommended buy rating on the stock with a target price of Rs 510 in its January 24, 2012 research report.

"Federal Bank's PAT grew 41% YoY to INR2b (4% higher than our estimate). Strong NII growth to INR5.3b (6% higher than our estimate), driven by 17bp QoQ improvement in NIM and higher forex income (INR277m v/s INR52m in 3QFY11), led to higher than estimated PAT. Reported margin improved 17bp QoQ to 3.94% - a positive surprise. While cost of deposits increased 13bp QoQ, higher yields on loans (+17bp QoQ) and investments (+22bp QoQ) led to margin improvement."

"On a sequential basis, loans and deposits were largely flat (across the segment). However on a YoY basis, loans and deposits grew 18% and 27%, respectively. CASA deposits grew ~6% QoQ and 22% YoY to ~INR132b. CASA ratio improved to 28.2% v/s 26.4% a quarter ago. In 3QFY12 slippages stood at ~INR3.3b (v/s INR2.7b a quarter ago and INR3.2b a year ago) of which retail segment constituted INR460m, SME (INR910m) and large corporate segment (INR1.9b). GNPA in absolute terms increased 9% QoQ, whereas NNPA was up 24% QoQ."

"While RoA is expected to be healthy at ~1.3%, RoE is likely to remain in mid-teens, as leverage remains low on strong capital base (tier-I ratio of 14.9% in 3QFY12). We estimate EPS at INR43 for FY12 and INR50 for FY13. We expect BV of INR328 in FY12 and INR363 in FY13. The stock trades at 1.2x FY12E BV and 1.1x FY13E BV. Maintain Buy with a target price of INR 510 (1.4x FY13E BV)," says Motilal Oswal research report.

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