ICICI Direct is bullish on Federal Bank has recommended buy rating on the stock with a target price of Rs 105 in its research report dated July 18, 2018.
ICICI Direct's research report on Federal Bank
Absolute slippages moderated from Rs 872 crore and were at Rs 461 crore coming back to the ~Rs 400 crore trend seen in the past. Also, Rs 163 crore slippages from standard restructured book led to corporate slippages of Rs 207 crore. FY18 GNPA was at Rs 2868 crore vs. Rs 2796 crore QoQ. GNPA ratio was stable at 3%. NNPA ratio rose to 1.72% Owing to relatively better asset quality, provisions declined significantly from Rs 372 crore to Rs 199 crore in Q1FY19. Lower slippages along with 24% YoY credit growth boosted NII growth to 22% YoY to Rs 980 crore With strong NII and lower provisions, overall PAT came in above estimate at Rs 262 crore (up 25% YoY, 81% QoQ) vs. estimate of ~Rs 202 crore. NIM remained steady QoQ at 3.12% Business growth was healthy. Advances increased 24% YoY to Rs 95515 crore with higher growth in the corporate segment (forming 44% of loans) at 24% YoY. Retail and SME book increased ~20% and 17% YoY, respectively. Deposit grew 16% YoY to Rs 111242 crore.
Post a surge in slippages in FY18, owing to RBI’s February 12 circular on stressed accounts, accretion of the same has moderated to the previous run rate. Restructured assets have also been trimmed down due to a fall in NPA. The management guidance on moderation, going ahead, is panning out. We factor in healthy credit growth of 23% CAGR in FY18-20E along with margins >3.1% levels. We expect return ratios to improve from current levels. Thus, we maintain our BUY rating with a target price of Rs 105, valuing at 1.6x FY20E ABV. Further, value unlocking of stakes in the life insurance JV and NBFC subsidiary remain upside risks.
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