Analyst Research Report Snapshot

Title:

Spark Capital: Federal Bank 1QFY14 result review - The darkest hour of all is the hour before dawn

Price:

$58.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

23 Jul 2013

Pages:

6

Type:

AcrobatPDF

Companies referenced:

FED.NS

Available for Immediate Download
Summary:

Federal Bank 1QFY14 result review - The darkest hour of all is the hour before dawn After being negative over much of FY11-13, where we had questioned the street’s extrapolation of the pace of Federal Bank’s turnaround, we turned constructive in 1QFY14, well nigh the end of a loan book cleanup. Events since then have only strengthened our thesis – slippages for 1QFY14 trended downwards to 2.8% from 3.6% in 4QFY13 while the restructured portfolio was stable qoq at 4.7% of the book - incremental restructuring was only Rs. 0.77bn, down from Rs2.2bn a quarter back. Hearteningly, the SME and retail books continued to witness 20% yoy growth rates, with annualized slippages stabilising at ~1.6% for retail and ~2% for SME (slippages at 2.1% and 3.3% respectively a year ago). Large corporate loans accounted for 60% of the slippages (the 3rd consecutive quarter of ~4% annualized slippage on the corporate portfolio) and although we foresee a couple more quarters of large corporate related asset quality stress, the overall slippage trend remains southward. NIMs rose 5bps qoq led by a led by 14% sequential decline in the low yield large corporate book, which currently accounts for 38% of the credit portfolio (42% in 4QFY13). Notwithstanding a relatively better quarter on the asset quality front, provisions spiked 242% yoy led by 100% provisioning on NAFED (Rs. 2.2bn exposure, provision cover of 50% as of 4QFY13); although our numbers do not factor in a settlement, a possible OTS on NAFED could act as a stock price driver. Adjusted for one off provisions, 1QFY14 was an inline quarter, and we believe the management’s strategies of transforming the bank’s economics and risk-reward framework from a high risk customer-high margin-high credit cost way of doing business to a low risk customer-low margin-low credit cost model will pan out more meaningfully over FY14-16. We would recommend investors to buy now and rate the stock a BUY with a target price of Rs. 495, 1.3x FY14EABV.

Why buy analyst research?

  • Institutional quality research
  • Available for Immediate Download
  • Detailed company or industry insight
  • Print or save
  • 24 hour customer support
Return to previous page without adding this item to your cart.
Email Customer Support.

About Analyst Research

Analyst research reports are available for immediate download after purchase. You will have unlimited access to the report for 24 hours after purchase, to download, print or save it as many times as you wish. Analyst Research provided by Reuters does not constitute investment advice, and is not endorsed by Reuters Research. This information is protected by copyright and intellectual property laws. More information on Analyst Research.