January 20, 2017 / 17:07 IST
Federal Bank’s (FB) Q3FY17 earnings were broadly in line with estimates. NII was better than anticipated (up >30% YoY/9% QoQ), but higher opex (up 13% QoQ, largely following one-off cost due to demonetisation) kept profitability in line. The quarter saw sustained growth march — loan spurted >30% YoY driven by higher corporate growth — leading to better NII (4th quarter of improvement).
Outlook
After a soft FY16, we saw FB coming into sweet spot given up-fronting of stress recognition and growth levers. Focus on building revenue momentum renders comfort that bank will track >40% earnings CAGR over FY16-19E with RoE improving to 14%. We roll forward to FY19E earnings, and revise our TP to INR 100 (1.7x FY19E P/ABV; earlier INR 88). At CMP, the stock is trading at 1.3x FY19E P/BV. We maintain ‘BUY/SP’.
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