Prabhudas Lilladher's research report on Federal Bank
Board approved preferential issue of up to 272.97mn warrants at Rs227 p.s. to Asia II Topco XIII Pte. Ltd. i.e. Blackstone for Rs61.97bn. 25% of the amount i.e. Rs15.49bn would be payable at time of subscription post RBI and shareholder approval while remaining 75% will be payable within 18 months of allotment. This suggests a pre/post money dilution of 11.1%/10.0% at a valuation on Sep’27 ABV of 1.3x (normal 1.2x) indicating that the raise is BV accretive. CET-1 may increase by 200-250bps to 17.0-17.5%. Accretion to FY27/28 ABV would be 4.1/2.7% while ROE might fall by 11/63bps to 12.1%/11.9%; EPS for FY28 may be 7% lower. NIM for FY27/28E increases 2/3bps to 3.10/3.13%. Capital raise is a positive since it would strengthen the balance sheet and support growth. Also, it gives FB leeway to plan for an inorganic acquisition.
Outlook
Due to a stronger balance sheet and increase in ABV, we increase multiple slightly to 1.4x from 1.3x on Sep’27 ABV and raise TP to Rs250 from Rs235. Retain ‘BUY’.
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