IGI Logo

Price Analysis

Federal Bank has reported mixed 1QFY24 earnings and the key pointers are a) NPA ratio slightly weak (GNPA: 2.38% v/s 2.36% in the previous quarter) on the back of higher slippages and slower recoveries, b) Reported slippages (?5bn v/s ?4.4bn in 4QFY23) were up with slower recoveries (?2.5bn), c) restructuring pool declines further with 21% coverage, d) Robust business growth with credit off-take of 21% and deposit traction of 21.3%, e) slightly higher credit cost with stable PCR f) quarterly profit stood at ?8.5bn down 5.4% sequentially with ROA of 1.28%. NIMs compression of 68bps and sequential de-growth in other income. We expect NIMs to have likely bottomed out and YOA to improve going forward on the back of favorable loan mix. Additionally, the bank’s credit quality is in check and we re-iterate BUY.

NIMs likely to have bottomed out: The bank’s NII stood at ?19.2bn; grew by 19.6% YoY and 0.5% sequentially. NIM compressed sequentially by 16bps to 3.15% driven by 20bps increase in COD at 5.32%. The bank’s YOA inclined by 8bps to 9.21%. However, it’s in the range of 3.2 – 3.3% guided earlier. The management believes that margins have bottomed out with impact of deposit re-pricing already reflected in COF. Faster yield expansion driven by favorable loan mix and business growth to drive NIMs expansion. Non-interest income has witnessed growth of 62% YoY and flat sequentially because of high treasury profit. Moreover, C/I ratio slightly up and stood at 50.9%. Owing to flat NII and higher operating expenses, the bank’s PPOP de-grew marginally by 2.4% QoQ. Provisioning expenses are on higher side (?1.56bn v/s 1.17bn in the last quarter) on the back of higher loan loss provisions. Moreover, credit cost up at 41bps for 1QFY24. Thus, it resulted in PAT of ~ ?8.54bn; grew by 42% YoY and de-grew by 5.4% sequentially. The bank’s ROA/ROE stood at 1.28%/15.73%. Despite lower NIMs, the ROA is likely to stay stable on the back of lower credit cost.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at www.lkpsec.com/#foo

SEBI Registration number is INM000002483

Above views are of the author and not of the website kindly read disclaimer