Federal Bank is likely to come out closer/better to the best-in-class players on impairment ratios.
Chirag Batavia • 24 May 2021
CLOSED
Federal Bank
- Federal Bank is likely to come out closer/better to the best-in-class players on impairment ratios. Excelled in the first year of Covid impact with lower slippages, restructuring and use of ECLGS.
- It reported ~60% yoy earnings growth primarily on account of lower provisions (~55% yoy decline). Slippages mere at ~2% and restructured loans at 1.1%. In Q4FY21, Deposit growth held up much better with overall deposits increasing ~13% yoy.
- Gold loan growth was sharp at 70% yoy with loan book crossing ~Rs15800 cr. Gold loan portfolio growth benefitted by increase in gold prices and relaxations in LTV. The bank aims to grow gold loan book by 30-40% yoy.
- We maintain BUY rating with a Fair Value of Rs100. At our FV, we are valuing the bank at 1.1X book and 7X FY23 EPS for RoEs (return on equity) steadily moving closer to 12-14% levels. It remains our preferred mid-tier bank pick.
- A key challenge has been forecasting a return profile closer to the best players.
Federal Bank (FB): BUY
Dated: 24 th May 2021
CMP: Rs.85
Fair Value: Rs.100
Potential Upside: 17.6%
Market Cap: Rs.15,697 Cr
Time Frame: 12 months
Note: The above is a brief note on the company, based on the inputs of KIE research report dated 17 th May 2021, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental . Disclaimer: http://bit.ly/2n5AxIE
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Lakshit Financial Authorized Person of Kotak Securities Limited in cash segments of BSE & NSE and NSE F&O segments with NSE. Lakshit Financial registration number: BSE CASH AP0106730124228 | NSE CASH AP029177621 | NSE F&O AP029177621.Registered Office: Lakshit Financial, ASM 7, Ashwin Sector, Mumbai Agra Highway, CIDCO, Nasik 422009, Maharashtra, India. Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051. SEBI Registration No. INZ000200137 (Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97.
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Home First Finance (HOMEFIRST) Home First remains consistent on operational and financial parameters. Home First (HFFC) reported 24% earnings growth, with 19% net interest income growth in Q2FY25. Gross stage-3 ratio was flat qoq at 1.7%, stage-2 ratio declined 6 bps qoq to 1.1%. While other asset classes have reported mixed trends residential home loans, as an asset class, continues to stand tall. Home First, with 85% home loan exposure, is well-placed on the above. We expect the company to deliver 25% earnings CAGR for FY25-27E. We remain assertive with a BUY rating and FV of Rs1,360 (no change). Note: The above is a brief note on the company, based on the inputs of KIEresearch report dated 25111Oct, 2024, which is available onour website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamenta1. Disclaimer: http://bit.ly/2n5Ax1E https://www.kotaksecurities.oom/ksweb/research/kotak-research-reports/top-weekly-picks
