Dolat Capital's research report on Federal Bank
Operating profits (+27% YoY) got a boost from higher other income, though NII growth at 11% YoY was in-line. PAT was below expectations led by higher provisions, including Rs0.6bn of COVID related provisions. Part of the rise in provisions went towards raising the bank’s PCR, which is up 800 bps QoQ to 54.5%. Bank’s COVID related provisions of Rs0.9bn or 0.1% of loans remains below peers. CASA growth at 7% YoY was superior to peers. Other income benefitted from higher treasury gains, improvement in fee lines and gains from Yes bank stake sale. Ex-commercial banking, sequential loan growth at 3% QoQ (11% YoY) was well distributed across segments.
The bank’s lower asset side risks, which resulted in weaker margins thus far, may prove to be a savior in the current environment. However, limited earnings cushion with PPoP/assets at ~2%, lower provisioning buffers and volatility in pension provisions could limit RoAs at 0.5%/0.9% for FY21E/22E. We maintain our ACCUMULATE recommendation on the stock with a TP of Rs50, valuing it at 0.7x of FY22E P/ABV. The stock currently trades at 0.6x FY22 PABV.
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