Federal Bank Q2FY18 | Recommendations on Federal Bank | IndiaNotes.com

FEDERAL  BANK  LTD  reported  strong  &  steady  September quarter with PAT rebounding in double digits  after  de-growth in  the  previous June quarter.

PAT  stood  at  Rs.  2637  Mn  compared  to  Rs.  2012  Mn  same  period  previous  year  rising  31%  YOY  &  25%  sequentially.  Net  Interest Income, difference between interest earned and  expended  was  reported  at  Rs.  8990  Mn  in  the  current  quarter  against  Rs.  7260  Mn  corresponding  quarter  previous year, expanding 24% YOY.

Net Interest Margin was reported  at  3.31%  improving  18  B  P  QOQ with a fall  of  1  basis  point  YOY  in  the  current  September  quarter.

Asset quality has also improved on yearly basis as GNPA &  NNPA  ratios  declined  39  &  29  basis  points  in  the current  September  quarter.    One  basis  point  is  0.01%. Gross  NPAs  as  a  percentage  of  Gross  Advances  was  at 2.39%  in  Q2  FY18  against  2.78%  same  period  previous year.

Net  NPAs  as  a  percentage  of  Net  Advances  was reported  at  1.32%  in  the  current  quarter  against  1.61%  same  period  previous  year.  Provisions  &  contingencies declined 25% sequentially and were reported at Rs. 1768Mn  vis-à-vis  Rs.  1684  Mn  in  Q2  FY17.

Wholesale  or corporate  segment  reported  32%  growth  YOY  leading the  pack,  followed  by  other  banking  business  jumping

27%  YOY.  Retail  grew  7%  YOY  and  2%  sequentially whereas  Treasury  reported  3% rise on yearly basis with sequential negative  growth  of 8%. 

CASA  ratio  at  32.93% jumped  189  basis  points  YOY  in  September  quarter.  CASA deposits increased from Rs.  267870 Mn in Q2 FY17

to  Rs  320156  Mn  in  current  September  quarter,  jump  of  20%  YOY.  Other  income  or  non  interest  revenue accounting  11%  of  the  total  income  of  the  bank  rose  at 5% YOY at Rs. 2872  Mn  against  Rs  2721  Mn same period  previous year. 

Advances  moved  at a higher rate  of 25%  whereas  Deposits grew  13%  YOY.  Deposits  stood at  Rs.  972108  Mn  with  sequential  growth  of  1.43%  whereas  Advances  rose  6%  QOQ  at  Rs.  806459  Mn  in  Q2  FY18.

Cost income ratio of bank  stood at  50.83% in the current  quarter  against  52.40%  in  the  corresponding  quarter previous  year.  Federal  Bank  with  stable  Net  Interest  Margin,  growing  NII  and  improving  asset  quality  is marching towards  sustainable  growth for long term.

We recommend  BUY  with  PE  multiple  of  22.38  x  FY18E  & 18.40 x FY19E for medium and long term investment with a target price of Rs. 185.

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