Accumulate Federal Bank; target of Rs 62: Dolat Capital Market

Dolat Capital Market's research report on Federal Bank

Federal Bank reported better than expected NII and PPoP growth of 23% and 40% YoY respectively aided by sharp sequential growth in higher yielding gold loans and improved fee lines. NIM improved 6bps QoQ to 3.13%. Against a restructuring guidance of 2.5-3% of loans, the bank provided ~Rs4 bn or 10% during the quarter. Additionally, management expects quarterly slippages to rise by 30-50%, ex of any large corporate account, stress in which is not envisaged currently. If not for the NPA standstill order, the bank would have had slippages of Rs2.4 bn, against which it has made specific provisions of 15% during the quarter, which partly led to the ~600 bps rise in PCR to 66%. Collection efficiency for Sep month was ~95%, at par with Feb-20 levels.

Outlook

Rolling over our estimates to Sep-22E, we maintain our ACCUMULATE recommendation on the stock with a revised TP of Rs62, valuing it at 0.9x P/ABV. The stock currently trades at 0.7x Sep-22E P/ABV

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