Buy Federal Bank; target of Rs 140: ICICI Direct

ICICI Direct is bullish on Federal Bank has recommended Buy rating on the stock with a target price of Rs 140 in its research report dated October 17, 2017.

October 23, 2017 / 11:27 IST

26 Aug, 2025 12:21

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ICICI Direct's research report on Federal Bank

GNPA accretion moderated at Rs 284 crore in Q2FY18, led by a decline in slippage in corporate book (Rs 20 crore vs. Rs 169 crore QoQ). Absolute GNPA increased to Rs 1949 crore while GNPA ratio improved 3 bps QoQ at 2.39%. Standard restructured book (including SDR, S4A & 5/25) was at Rs 1343 crore (~1.7% of loans) Exposure to IBC related accounts was at ~Rs 22 crore. Provision on the same was adequate as per regulatory requirement NII growth remained healthy at 23.8% YoY, led by healthy advances growth and 18 bps QoQ increase in margins to 3.31%. Led by lower treasury gains, other income growth remained a bit slower at 10% YoY. However, core fee income grew 20% YoY to Rs 195 crore PPP growth remained strong at 23% YoY. Though CI ratio increased at 50.8%, lower provision led to 31.2% growth in PAT at Rs 264 crore Advances came in at Rs 80646 crore, up 24.7% YoY, led by 36% YoY growth in corporate segment to Rs 32175 crore.

Outlook

Post higher slippage in Q1FY18 led by one corporate account, pace of bad asset accretion has slowed down in Q2FY18. The impact of farm loan waiver and demonetisation on the retail book is largely over. Consequently, overall asset quality remains healthy relative to peers. We remain positive on fundamental strength factoring in higher than industry asset growth, stable margins and gradual improvement in return ratio. Consequently, we maintain our target price at Rs 140, keeping multiple constant at 2.1x FY19E ABV. We maintain our BUY recommendation on the stock. Further, value unlocking of stakes in the life insurance JV and NBFC subsidiary remain upside risks.

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