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IDBI Capital
Federal Bank (Buy)
Target: ₹60
CMP: ₹52.05
Federal Bank’s asset quality deteriorated slightly with GNPA inches up by 12 bps QoQ to 2.96 per cent, as conservatively one corporate account (UAE exchange exposure of ₹170 crore) treated as NPA during the quarter. Credit growth declined to 8 per cent YoY (vs 11 per cent FY20) due to complete lock-down situation in first 2 months of the quarter (Q1FY21).
On the corporate book, management is being cautious and selling down portfolios which do not meet its risk profile and is watchful of credit growth in certain sectors.
Net Interest Income grew by 12 per cent YoY led by improvement in NIMs, while PAT grew at a lower rate of 4 per cent YoY due to higher provisions (up 105 per cent YoY; ₹93 crore Covid-19). Operating profit grew by 15.5 per cent YoY driven by a 24 per cent growth in Non-Interest Income. Moratorium book has been led by Business banking and commercial banking at 42 per cent and 35 per cent respectively.
NIMs improved sequentially to 3.07 per cent, while cost to income ratio improved by 246 bps QoQ to 47.8 per cent. We largely retain the PAT estimates for FY21/22 and reiterate ‘buy’ with a target price of ₹60 valuing it at 0.8x P/ABV FY22.
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