Hold Federal Bank; target of Rs 99: Centrum

Centrum's research report on Federal Bank

Federal Bank, for Q1FY19, reported decent set of numbers with net interest income growing 22.4% YoY. Pre-provisioning profit grew at a slower pace of 8.1% due to 118bps YoY increase in cost-income ratio (CI%) at 51.8% vs. 50.6% in the corresponding quarter last year. Net profit grew 25.0% to Rs263 crore led by a 15.8% decline in provisions & contingencies. Asset quality, at the end of the quarter, remained stable with gross non-performing assets (NPAs) unchanged at 3.00%. Net NPA increased 3bps QoQ to 1.72%, on lower provisioning.

Outlook
In the post-result concall, the management has maintained their guidance for FY19. We remain positive on the stock from a long term perspective and maintain Hold rating with a target price of Rs99, valuing the stock at 1.4x its FY20E ABV.

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