Edelweiss' research report on Federal Bank
In light of Federal Bank’s recent underperformance (>25% in six months), we were keen on gauging its critical parameters; thus we met its top management. Management reiterated the stress for FY19 is largely contained (slippages guidance of 1.3–1.4%, credit cost of 65–70bps), which coupled with 65% provision coverage is comforting. It sounded upbeat about logging >25% broad-based credit growth and a potential leg-up from unsecured retail loans. Fee income may witness the much-awaited revival given new management is in place as well as the bank’s renewed focus. The bank is also scouting for inorganic opportunities (NBFC, MFI) and stakes in asset management firms.
Outlook
We believe FB is heading in the right direction to deliver RoA/RoE of 1.0%/13% by FY20E, though quarterly consistency will be key. The stock trades at 1.2x FY20E ABV, and we maintain ‘BUY’.
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