Motilal Oswal is bullish on Federal Bank has recommended buy rating on the stock with a target price of Rs 120 in its research report dated May 05, 2019.
Motilal Oswal's research report on Federal Bank
4QFY19 PAT of INR3.8b (8% ahead of our estimates) was led by controlled provisions of INR1.8b (7% QoQ decline). PPoP increased 28% YoY to INR7.5b (in line). For FY19, PPoP grew 20.6% YoY while PAT rose 42% YoY to INR12.4b. NII stood at INR10.9b (+17.5% YoY), which, coupled with 31.1% YoY growth in other income, drove 20.9% YoY growth in total revenues. NIM remained flat sequentially at 3.17%. Fee income was robust, up 21.4% YoY to INR2.9b. Loan growth stood at 19.9% YoY (+4.4% QoQ), led by 24%/20% YoY growth in retail/corporate loans, while SME growth remained muted at 12% YoY. Deposits grew 20.5% YoY while CASA mix stood at 32.2% (-120bp QoQ). Fresh slippages moderated to INR2.6b (1.1% annualized) driven by 32%/50% YoY/QoQ decline in SME slippages and NIL corporate slippage. However, slippages in agri portfolio increased 64.3% YoY as bank up-fronted some stress aggrieved by political influence. Healthy recoveries/upgrades at INR3.23b drove 419bp QoQ improvement in PCR to 50.1% (67.2% including TWO). GNPA/NNPA ratios improved 22bp/24bp QoQ to 2.92%/1.48%.
However, the pressure on CASA mix and flattish margins has driven us to slightly lower our NII estimates. We estimate FB to deliver 26% CAGR in earnings over FY19-21E and project RoE to improve to 12.9% v/s 9.8% in FY19E. We revise our TP to INR120 (1.5x FY21E ABV). Maintain Buy.
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