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Geojit Securities
Federal Bank (Buy)
Target: ₹65
CMP: ₹52.70
Strong growth of 23 per cent y-o-y in net interest income (NII) powered by a 6 per cent growth in advances. A 40 per cent y-o-y growth in pre provision profits led by fee income and lower operating expenses.
Banks retail to wholesale mix now stands at 52:48 with retail at ₹65,699 crore and wholesale lending at ₹59,510 crore. This ratio is almost inline with management’s vision of 55:45 mix.
Gold loan portfolio mix now stands at 10.2 per cent of the overall retail mix and bank has provided Loan to Value of close to 85 per cent as per the instruction from RBI. Collection efficiency back to pre-Covid levels at 95 per cent powered by improvement in collection across segments. Asset quality improved with GNPA/NNPA at 2.84 per cent/0.99 per cent, with provision coverage of 64.65 per cent.
We expect NII/PAT to grow at a CAGR of 10 per cent /13 per cent on the back of 11 per cent CAGR growth in advances after factoring in Covid led uncertainties. We have reduced our cost of deposits estimates by 25 bps each in FY21 and FY22 ,and expects cost to income levels to be maintained at 48 per cent in the long term.
We maintain Buy rating on the stock with a revised upward target price of ₹65 .
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