POSITIONAL CALL

FEDERAL BANK LIMITED RUDRA SHARES &

STOCK BROKERS LTD

BUY | CMP 100.80 | TARGET 130 | POTENTIAL UPSIDE 29%

07 MAY 2019
Stock Data LEAD RATIONALE
M.Cap (` in cr) 20012 Bank continues to enjoy a strong retail liability franchise with a
Equity ( ` in cr) 397.07 high share of retail deposits. Healthy traction in fee-based income
over the last few quarters mingled with low incremental stress
52 wk H/L ` 102.4/67.05
from corporate book should aid overall slippages & augers well
Face Value ` 2.00 for company, going forward. Nonetheless, bank still maintaining
Div. Yield 1.42% cautious stance in growing high-ticket size loans in an unfavorable
NSE Code FEDERALBNK
macro environment & will remain watchful of its Kerala portfolio for
any likely volatility in slippages. Moreover, Bank endeavors to con-
BSE Code 500469 tinue improvement in return ratios from higher productivity,
NIMs and maintained credit cost.

Valuation Data Valuation Outlook

EV/EBITDA 16.78
Bank delivered twice growth in Net profit at `381.51 crore during the
P/BV 1.5 quarter led by significant improvement in the asset quality. Provi-
BV 68.39 sions and contingencies fell by 52.15% to ` 177.76 crore. Sharp drop
in slippages helped shrink GNPA & NNPA during the quarter.
Thereby, GNPAs to gross advances declined to 2.92% from
Index Detail 3.14% sequentially. Similarly, NNPA tumbled to 1.48% against
Sensex 38276.63 1.72%. On the recovery front, bank has performed well as coverage
ratio increased to 70%. While, CAR increased to 14.1% from 12% on
Nifty 11497.90 sequential basis, which is quite decent stating bank having ade-
Index S&P BSE 100 quate capital to fund its future projects.

As guided by the management earlier, ROA and credit cost has hit target at 1% and 0.68% for the
year. Further guidance note stated to brush up ROA by 10-12Bps each year for next couple of
years. Also, focus on equal weightage for both its Retail & Wholesale business to 50:50 from
47:53 is not far off. This would help lower RWA for the bank, as already seen in the Q4 num-
bers.
We value Federal bank at P/BV multiple. Taking P/BV at 1.3x for FY20Est., the stated tar-
get is expected to be ` 130 in medium term.

www.rudrashares.com 1
 POSITIONAL CALL

FEDERAL BANK LIMITED RUDRA SHARES &

STOCK BROKERS LTD

Business growth enthuses
Business growth remains healthy. While the bank has an ab-
solute share of 1.1 % both in system’s advances and depos-
its, its share of the incremental market is higher, thereby
pointing to market share gains, going forward.
Core performance remained satisfactory with Net Interest In-
come growing by 17 % aided by good growth in advances
and Y-O-Y improvement in Interest Margin by 6 basis
points to 3.17 %. In addition, Non-interest income growth of
31 % supported by decent growth in core fees at 21 % as well
as good show from treasury. Recovery from written off ac-
counts also contributed meaningfully and the bank expects
this trend of strong recovery to sustain in years ahead as
well.
Further, Management had indicated that loan book growth
of 20-22% could be sustainable and expects an equal mix
of retail and corporate book going ahead .

Key Financials (` in crores) Key Ratios

Particulars Q4 FY 19 Q4 FY 18 Variation % Particulars Q4 FY 19 Q4 FY 18
Interest Income 3032.32 2547.97 19.01 CAR(%) 14.14 14.70
NII 1096.53 933.22 17.50 ROA(%) 1.02 0.46
Operating profit 754.75 588.57 28.23 ROE(%) 11.56 4.88
PAT 381.51 144.99 163.13 GNPA(%) 2.92 3.00
EPS* 1.92 0.74 159.46 NNPA(%) 1.48 1.69
NIM (%) 3.17 3.11 6 Bps C/I Ratio 49.96 52.82
Total Provisions 373 444 -15.99 CASA(%) 32.15 33.26
* Not annualized

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 POSITIONAL CALL

FEDERAL BANK LIMITED RUDRA SHARES &

STOCK BROKERS LTD

Key Takeaways to watch out -Efficiency Parameters

 Total business of the Bank registered a growth of 20.28% to reach ` 246783.61 Crores

 Deposits recorded a growth of 20.50% to reach ` 134954.34 Crores

 In FY 2019 NRE deposits grew by 17.66 % to reach ` 50109.16 Crores

 Auto loans grew by 62.04%, Personal loans grew by 143.08% and housing loans grew by
32.16%

 ROA, which was lagging in the last 2 years, is now picking up.

 In FY 2019 Retail advances recorded a growth of 24.79% to ` 31741.96 crore.

 It targets ROA of 1.25 % in 2021

 Credit Cost was contained at 0.51% even while increasing the PCR to 67.16%. Credit cost tar-
get is of 55-60% for FY 20.

 Loan growth should be 20-22% every year for the next two years. There are chances of the
growth being higher. Clear view would be available only by Q3.

 NIM was 3.17% in FY 2019 which should improve to 3.20% in FY 20.

 Proportion of high-yielding loans will rise to 5% in two years from the current 3%.

 Another 250 Bps improvement in the CI ratio is expected in the next two years.

 Bank will add 80-100 branches outside Kerala over the next two years.

www.rudrashares.com 3
 POSITIONAL CALL

FEDERAL BANK LIMITED RUDRA SHARES &

STOCK BROKERS LTD

Share price chart has been taken for a period of past 1 year. There is a long term sup-
port at the levels of `79.5 & resistance of `98.75 in medium term. If it will cross this
resistance, then reach to 52W/H of `102 - `105 and further reach to ` 120 –130 in
short to medium term.

www.rudrashares.com 4
 POSITIONAL CALL

FEDERAL BANK LIMITED RUDRA SHARES &

STOCK BROKERS LTD

Disclosures :

Business Activity :
Rudra Shares & Stock Brokers Limited is engaged in the business of providing broking services & distribu-
tion of various financial products. RUDRA is also registered as a Research Analyst under SEBI(Research
Analyst) Regulations, 2014. SEBI Reg. No. INH100002524.

Disciplinary History :
There has been no instance of any Disciplinary action, penalty etc. levied/passed by any regula-
tion/administrative agencies against RUDRA and its Directors. Pursuant to SEBI inspection of books and
records of Rudra, as a Stock Broker, SEBI has not issued any Administrative warning to Rudra.

Terms & Conditions of issuance of Research Report:

The Research report is issued to the registered clients. The Research Report is based on the facts, figures
and information that are considered true, correct and reliable. The information is obtained from publicly
available media or other sources believed to be reliable. The report is prepared solely for informational pur-
pose and does not constitute an offer document or solicitation to buy or sell or subscribe for securities or
other financial instruments for clients.

Disclosures with regard to ownership and material conflicts of interest :

Rudra or its research analysts, or his/her relative or associate has any direct or
Indirect financial interest in the subject company. NO
Rudra or its research analysts, or his/her relative or associate has any other
material conflict of interest at time of publication of the research report. NO
Rudra or its research analysts, or his/her relative or associates have actual
ownership of one per cent or more securities of the subject company. NO

Disclosures with regard to receipt of compensation :

Rudra or its associates have received any compensation from the subject
company in the past twelve months. NO
Rudra or its associates have managed or co-managed public offering of
securities for the subject in the past twelve months. NO
Rudra or its associates have received any compensation or other benefits
from the subject company or third party in connection with the
research report . NO

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 POSITIONAL CALL

FEDERAL BANK LIMITED RUDRA SHARES &

STOCK BROKERS LTD

Other Disclosures:
The research analyst has served as an officer,director,employee of the
subject company. NO
Rudra or its research analyst has been engaged in market making activity
for the subject company. NO
Rudra or its or associates have received any compensation from the
subject company in the past twelve months. NO

Disclaimers:

This Research Report (hereinafter called report) has been prepared and presented by RUDRA SHARES & STOCK
BROKERS LIMITED, which does not constitute any offer or advice to sell or does solicitation to buy any securities.
The information presented in this report, are for the intended recipients only. Further, the intended recipients are ad-
vised to exercise restraint in placing any dependence on this report, as the sender, Rudra Shares & Stock Brokers
Limited, neither guarantees the accuracy of any information contained herein nor assumes any responsibility in rela-
tion to losses arising from the errors of fact, opinion or the dependence placed on the same.
Despite the information in this document has been previewed on the basis of publicly available information, internal
data , personal views of the research analyst(s)and other reliable sources, believed to be true, we do not represent it as
accurate, complete or exhaustive. It should not be relied on as such, as this document is for general guidance only.
Besides this, the research analyst(s) are bound by stringent internal regulations and legal and statutory requirements
of the Securities and Exchange Board of India( SEBI) and the analysts' compensation was, is, or will be not directly
or indirectly related with the other companies and/or entities of Rudra Shares & Stock Brokers Ltd and have no bear-
ing whatsoever on any recommendation, that they have given in the research report. Rudra Shares & Stock Brokers
Ltd or any of its affiliates/group companies shall not be in any way responsible for any such loss or damage that may
arise to any person from any inadvertent error in the information contained in this report. Rudra Shares & Stock Bro-
kers Ltd has not independently verified all the information, which has been obtained by the company for analysis
purpose, from publicly available media or other sources believed to be reliable. Accordingly, we neither testify nor
make any representation or warranty, express or implied, of the accuracy, contents or data contained within this
document. Rudra Share & Stock Brokers Ltd and its affiliates are engaged in investment advisory, stock broking,
retail & HNI and other financial services. Details of affiliates are available on our website i.e. www.rudrashares.com.
We hereby declare, that the information herein may change any time due to the volatile market conditions, therefore,
it is advised to use own discretion and judgment while entering into any transactions, whatsoever.
Individuals employed as research analyst by Rudra Shares & Stock Brokers Ltd or their associates are not allowed to
deal or trade in securities, within thirty days before and five days after the publication of a research report as pre-
scribed under SEBI Research Analyst Regulations.
Subject to the restrictions mentioned in above paragraph, we and our affiliates, officers, directors, employees and
their relative may: (a) from time to time, have long or short positions acting as a principal in, and buy or sell the secu-
rities or derivatives thereof, of Company mentioned herein or (b) be engaged in any other transaction involving such
securities and earn brokerage or profits.

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