Buy Federal Bank; target of Rs 65: Motilal Oswal

Motilal Oswal 's research report on Federal Bank

Federal Bank (FB) reported moderation in 4QFY20 business growth affected by the weak environment. The bank made higher COVID-19 related provisions of INR930m, which dragged earnings in the quarter. PPoP was strong at 27% YoY (aided by treasury gains) while moratorium book stood at 35%. Lower slippages (as FB availed dispensation given by the RBI) and higher provisions, resulted in overall improvement in asset quality/PCR. We have cut our FY21E estimates sharply by 19% as we factor in higher credit cost and slight moderation in business growth. However, we largely maintain our FY22E estimates. Maintain Buy.

Outlook

We estimate FB to report RoA/RoE of 0.9%/10.9% by FY22E. Maintain Buy with a revised TP of INR65 (0.8x FY’22E ABV).

Federal Bank 29052020-moti