Buy Federal Bank Ltd For Target Rs. 110 - Motilal Oswal
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Business growth moderates sequentially; CASA mix improves
FB released a quarterly update, emphasizing its 1QFY22 business numbers. Here are the highlights:
* Gross advances grew 7.6% YoY to ~INR1.3t. However, it reported a 1.6% sequential decline in loan growth (v/s +5.2% QoQ in 4QFY21). Growth was affected by the lockdowns announced in various key states, which resulted in subdued disbursements. As per RBI data, systemic credit growth remains weak at 5.8% YoY (1% decline in FY22 YTD) as on 18th Jun’21.
* FB’s total deposit base declined by ~2% QoQ (up 9.3% YoY). However, total customer deposits were broadly flat QoQ (up 10% YoY). The bank reported a CASA/TD growth of ~19%/~6% YoY (+1%/flat QoQ). CASA ratio improved by ~100bp QoQ to ~34.8%.
* Certificate of deposits/interbank deposits posted a sharp sequential decline (~59%/~23%).
* The bank continues to maintain a high Liquidity Coverage Ratio (LCR) at 215.2% (v/s 211.7% in FY21).
* FB posted a moderation in business growth, mainly affected by the lockdowns announced in various key states. Systemic credit growth remained weak, with a 1% decline in FY22 YTD. Growth in customer deposits was broadly stable on a sequential basis. We expect the drop in collection efficiency in Apr-May’21 to be similar to other Banks. We maintain our Buy rating with a TP of INR110/share (1.1x FY23E ABV).
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