Hold Federal Bank; target of Rs 47: ICICI Direct

ICICI Direct's research report on Federal Bank

Federal Bank reported a mixed set of Q4FY20 numbers wherein the operational performance was healthy due to other income one offs but a surge in provisioning dented PAT growth. As on May 25, 2020, 35% of borrowers by value opted for the moratorium with retail customers comprising a majority. Total provisioning for the quarter was at Rs 567 crore (~46 bps of advances), which includes Covid-19 provisioning of Rs 93 crore (RBI requirement of Rs 30.3 crore). The bank has reported Covid-19 impact on loss of revenues and recoveries to the extent of Rs 80 crore. PCR was at 72.48% vs. 67.16% in Q4FY19.

Outlook

Exposure to MSME and LAP could be a cause for asset quality worry in the medium term led by Covid-19. The bank would make additional provisioning in Q1FY21, Q2FY21, which would take a toll on earnings. We estimate RoA, RoE at 0.7%, 8.7%, respectively, for FY22E. We maintain HOLD rating and value the stock at 0.6x FY22E ABV with a revised target price of Rs 47.