Checkout Budget Highlights 2023Sharekhan's research report on Federal Bank
We attended Federal Bank (FB) Analyst Day, where in Bank discussed recent trends and its outlook, along with the key levers for RoA expansion. Credit cards, personal loans, MSME funding, CV/CE, gold loan and MFI loans would see significant scale up in next three years. Asset mix skewed towards these high yielding product segments is expected to support NIMs. Also, higher focus on retail assets will help improve fee income, further supporting incremental RoAs. Moreover, fee income traction is expected to improve led by new bancassurance partnerships, cross selling and co-lending. The bank is confident of ~10 bps improvement in ROA every year for next 3 years. Besides this, focus is on 3Ns- NNPA under check (maintain best-in-class asset quality); Net promoter score (NPS) improvement; and Net worth doubling in next three years.
Outlook
Bank is confident of sustaining the strong performance and is guiding for high mid-teens growth in advances going forward. We believe strategy to scale up the key outlined business segments would require at least one asset-quality performance test during the downcycle to derive comfort. At the CMP, the stock trades at 1.1x/0.9x its FY2024E/FY2025E BV estimates. We maintain our Buy rating on the stock with an unchanged PT of Rs. 170. Valuations are inexpensive.
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