Federal Bank jumped 5.01% to Rs 131.05 after the private bank posted a 52.89% rise in standalone net profit to Rs 703.71 crore in Q2 FY23 from Rs 460.26 crore in Q2 FY22.
The bank’s total income grew 19.62% to Rs 4,630.30 crore in Q2 FY23 compared with Rs 3,870.90 crore in Q2 FY22. Operating profit before provisions and contingencies increased 32.9% year on year to Rs 1,212.24 crore in Q2 FY23.
Net interest income stood at Rs 1,762 crore in Q2 FY23, up 19.1% over Rs 1,479 crore in the same quarter last year. Net interest margin improved marginally to 3.30% in Q2 FY23 from 3.20% in Q2 FY22.
Provisions and contingencies fell 8.5% to Rs 267.86 crore in Q2 FY23 from Rs 292.62 crore in Q2 FY22. Provision coverage ratio (including technical write-offs) was 82.76%. Credit cost for the quarter stood at 0.53%.
Net worth of the bank increased from Rs 17,551.94 crore to Rs 19,617.82 crore, as on 30 September 2022. Capital adequacy ratio (CRAR) of the bank, computed as per Basel III guidelines stood at 13.84% as at the end of the quarter.
Gross NPA and net NPA of the Bank as at the end of the quarter stood at Rs 4,031.06 crore and Rs 1,262.35 crore respectively. Gross NPA as a percentage to gross advances stood at 2.46% and Net NPA percentage is at 0.78% as on 30 September 2022.
Total advances recorded a growth of 19.4% to reach Rs 1,63,957.84 crore from Rs 1,37,313.37 crore posted on 30 Spetember 2022. Total deposits reached Rs 1,89,145.71 crore from Rs 1,71,994.74 crore as on 30 September 2022.
The CASA deposits grew 10.74% YoY to Rs 68,873.27 crore in Q2 FY23 and CASA Ratio improved to 36.41% in Q2 FY23 from 36.16% posted in Q2 FY22.
During the quarter, retail advances grew by 18.38% to reach Rs 52,438.89 crore. Agri advances stood at Rs 21,090.70 crore, registering a growth of 17.96%. Business banking advances grew by 17.20% to Rs 13,617.35 crore. Commercial banking jumped 18.61% to Rs 16,240 crore. Corporate advances surged 20.70% to Rs 58,928.90 crore from Rs 48,822.63 crore posted in the same period last year.
Return on assets (ROA) for Q2 FY23 improved to 1.21% as against 0.92% in Q2 FY22. Return on equity (ROE) increased to 14.36% in the quarter ended 30 September 2022 as compared to 10.73% in the corresponding quarter previous year.
Commenting on the results, Shyam Srinivasan, managing director & CEO said, This has been our strongest quarter till date with very good growth across all key parameters. Strong business momentum has aided meaningful gains in market share. We have delivered the highest ever net profit with ₹ 704 Cr, ROA and ROE are in the right trajectory and the asset quality of the Bank continues to be strong at 2.46% and 0.78%. Credit costs are well controlled at 53 bps. We are encouraged by this and are working to ensure that the trend continues.
Federal Bank operates through four segments: treasury, corporate or wholesale banking, retail banking and other banking operations. The Bank has 1305 branches, 1876 ATMs/ Recyclers as on 30 September 2022.
The scrip hit an all time high of Rs 132.10 in intraday today.
Well, it appears the rerating has done for FB, and it will be fun to watch the next few Qrtrly results until the cycle turns !! Already 60 % up from six months low… And now its a no-brainer FB’s peer South Indian Bank!
Although, the stock has increased reasonably well in recent times, but, customer obsession is completely lacking in Federal bank. Its counterpart, like IDFC First Bank scores much better here.
I opened an account on Federal bank, and I received a debit card after 64 days, and that too, after multiple complaints. Never seen such lackluster behavior in any other bank.
Will keep a tab on Federal Bank’s stock price. Currently, keeping myself away from investing in the bank.
Encouraging Q3 results from Federal Bank.
Some highlights that caught my attention ( from investor PPT ) -
Q3 VS Q2 VS Q1 -
Fresh Slippages - 398 cr vs 375 cr vs 444 cr ( well within Bank’s guidance range of 1600 cr of annual slippages )
Restructured accounts - 3735 cr vs 3892 cr vs 3900 cr ( nicely controlled )
Net NPAs - 1229 cr vs 1262 cr vs 1420 cr ( nicely controlled )
Cost to Income Ratio - 48.84 vs 48.88 vs 52.68 ( massive improvement here )
Disc : invested from Rs 105 levels. Biased.
Federal Bank Q4 results - https://www.bseindia.com/xml-data/corpfiling/AttachLive/336cf423-d38a-4610-8947-8dab39d81847.pdf
Concerns seem to be: NIM going to 3.3% range.
Bank’s management is guiding for high teen Advances growth in FY 24. The exit ROA is around 1.25 for full financial year.
Why I continue to be bullish here:
- Deposits continue to grow well. At about 17% YOY and 6%QOQ is one of the best.
- The management is guiding for high teen Advances growth. I am hoping they would be able to grow at 15%+ over next 3 years while maintaining margin.
- The P/BV is about 1.26 which is almost last 5 year average. The management is guiding that they would double networth in next 3 years with Internal profits + by raising cash.
- The ROA is currently at 1.25 and management is guiding for 10 bps improvement YOY.
- The retail part is growing and can help aid NIMs.
Concerns:
- Can NIMs and ROA sustain? I am hoping they would be able to with unsecured/retail book growth.
- Cash Dilution
- Will they be able to grow Advances / Deposits at same pace.
- Too much concentration in Kerala / Bulk of deposits coming from Gulf region.
Can one of VPs build a bear case in this business?
Disclosure: Invested.
Federal Bank Q4 FY 23 concall highlights -
Credit growth at 20 pc yoy (led by retail, agri, corporate, commercial and CV book. Business bank grew slower at 13 pc)
Deposit growth at 17 pc yoy
Core fee income up 20 pc yoy (encouraging)
Cost/Income at 49.5 pc vs 59.8 pc yoy !!
GNPAs at 2.36 vs 2.80
NNPAs at 0.69 vs 0.96
PCR at 70 vs 65.5 pc
RoA at 1.45 vs 1.03
RoE at 17.5 vs 11.9
NIMs at 3.31 vs 3.16 yoy (but down qoq)
NII-1909 vs 1525 cr
NP-903 vs 541 cr
Restructured assets at 2830 vs 3536 cr
Q4 slippages at 436 cr (@ 1.04 pc annualised)
CASA ratio at 32 pc ( needs improvement )
Remittance Mkt share at 17 pc vs 21 pc yoy ( still very good )
Loan book - retail:wholesale - 54:46
Retail loans ( w/o Agri,CV, Business bank)-
Housing- 26k cr
LAP- 9.9k cr
Gold- 4.3k cr
Auto- 5.4k cr
Personal- 2.3k cr
Others- 8k cr
Wholesale banking book-
Commercial bank - 17.2k cr
Corporate bank - 64.3k cr
Credit substitutes - 4k cr
Two segments that saw massive growth on a very low base - Micro Finance (up 223 pc), Credit cards( up 493 pc)
Total branches - 1355 vs 1282
NIMs may have bottomed (at 3.31 vs 3.5 qoq). Have already passed on higher deposit rates
Aim to open 100 branches this FY
Cost/Income - intend to bring it down to 48 pc by exit of FY 24
May go in for capital raise for growth in FY 24
Retail deposits at 85 pc vs 92 pc last FY
A large part of NRI deposits are>2cr which are beyond the definition of retail deposits
Seeing trend of ppl moving money into term deposits from saving deposits. That’s an industry wide trend
Bank’s annual slippages were around 1600 cr ie about 1 pc of the book - among the best
Aim to increase gold loan portfolio by 25 pc in FY 24. Current gold loans ( retail + Agri + Business ) @ 10 pc of bank’s book. Aim to cap it below 15 pc of total book
Large part of fixed deposits book has a tenure of 12 months
Guiding for 3.30-3.35 NIMs for FY 24
High yielding business like micro fin,credit cards,CVs growing much faster but the base is small
Restructured book at 1.6 pc (although falling). This is < 1 pc for most good pvt sector banks. Bank believes that this book is behaving well now (post covid), not a cause of worry
Bank believes most of increases in cost of deposits is already in the price
Lower yields on Advances and hence lower NIMs are also a function of Bank’s conservative lending practises
Since the bank is likely to raise capital this yr, dividend announced at Rs 1 vs 1.8 / share LY
Plus the stock price performed well this year. So the shareholders should be happy … was the management’s call
CRAR at 14.81 pc. Tier-1 at 13.02 pc, Tier-II at 1.79 pc
95 pc of MFI clients are women !!!.. very smart, IMHO
Disc: holding, added more yesterday
This forum for business analysis not technical, you wont get many chart readers here and if you want to buy on chart there are better opportunities in market above 9,21 and 50 ema … Then why this bank
Any thoughts on why the CASA ratio has fallen to below 32%? It’s really low compared to all the other banks. Any input from the management on what is going on here?
- Fedfina has been raising capital via issues, in the past three years. On June 29, 2021 it raised capital aggregating to
200 Cr through a rights issue. The net worth in FY 2021-22 grew 38.2% to1,153.5 Crore (PY `834.8 Crore). - (Source: AR 21-22)
Disclaimer: Invested
Does existing shareholders of parent company get shares of subsidiary if it gets listed?
Fedeal bank raised 3000 Crore via QIP. QIP is for 23 Crore shares at a price of Rs. 131.9 per share.
See the press release here.
AJ
Disclosure: Remain invested.
Federal bank might be a low PBV/PE banking stock but not a rerating candidate till the below issues get addressed:
- Low NIM’s at 3.30% due to higher proportion of Corporate lending alongwith Lower exposure to Unsecured retail and high dependency on Secured Retail such as Gold loan/Home loan/Vehicle loans which are low yielding products and highly competitive. Further, they have Low CASA, Normal fee income and no strategy to grow unsecured retail agressively such as personal loans, credit cards, microfinance.
Even top pvt banks such as ICICI,HDFC,Kotak are focussing on these segments and have a good high yielding retail book which compensates for lower yield from Corporate lending. - Low ROA at 1.30% and ROE at 15%. Banking is a highly competitive business where ROA, NIM, ROE are very critical. At this ROE, if you raise growth capital, market doesnt appreciate.
- Regional exposure in South India. I have seen the low pricing strategy of the bank in Corporate lending to onboard accounts and beat competitors such as HDFC bank.
- Lending as a business has risks and Mgmt doesnt seem to grow unsecured retail so how will the NIM’s go up. Banks have to take a calibrated risk adjusted approach. It is not that the NPA for the bank was invisible in covid crisis as the GNPA went upto 3%. Same was 4% for IDFC first bank. Today Net NPA is 0.74% for Federal and 0.86% for IDFC considering Infra & corporate book as well. IDFC first has NIM of 6% for march quarter even after having some old legacy bonds in liabilities. Premium is paid for a reason.
- IN BFSI sector, there are many stock options for investors and it makes more sense to invest in established models which have long growth visibility, niche scalable business model. There is a reason that PSU banks/regional pvt banks with low PE/PBV are not considered good long term compounders. All the best.
NIM of 6 percent is not ethical banking at all. The way India is progressing, higher NIM would not be allowed by RBI policies for banks. IDFC is still running in NBFC model. Sooner or later they will have to change their policy of lending at higher rates.
The way many Banks(specially PSU banks) have started instant personal loan at lower rate , the way loan scrutiny and disbursal are being done digitally, the NIM has to come down for all banks in long run. The bank which will focus on high NIM would eventually grow slower with development of India. SO, In my opinion, Premium valuation of a bank on higher NIM would be a thing of past . Bank would be valued on asset quality (net NPA and GNPA) ,book value and offcourse growth. So, Federal Bank is undervalued for historical reasons which will change with time.
I dont agree here that NIM of 6% is unethical. One should see what are the lending segments of the Bank. NIM is a function of COF and Yields alongwith Fees. IDFC Yield on loans is around 12-13% which is higher on products such as consumer loans, Rural banking, LAP, Personal loans etc. There is high demand for these products in India since credit penetration is v low. Before commenting that Bank’s NIM are illegal, pl do detailed study into bank’s model & understand the mgmt. CEO Vaidyanathan is a Retail Lending Innovator who had built ICICI retail book by 2007 and has got strong retail experience. Management and lending is very clean for sure. It is a better mix of products which results in higher NIM. the Bank is also doing Home loans at 8.65%
Federal bank is unable to expand in unsecured retail since they are not confident in lending and recovery there. IDFC mgmt has more than 15 years of experience incl Capital first of doing consumer loans and retail and recovering money with less than 2% GNPA.
Federal is still a regional bank and IDFC is PAN India. Former’s book is still 45% corporate which supresses NIM since you cannot extract good NIM out of corporate lending. It is all about execution of successful strategies else there are many banks in India and Bank’s are not evaluated on PE model or undervalued model. It is long term sustainable growth model + Differentiator model.
FEDERAL BANK Q2 - The overall business growth was very healthy with great asset Quality for Federal Bank ( one can have a look at the numbers on Screener.in )
Management expects business growth to accelerate in second half
NIMs in Q1, Q2 were 3.15, 3.16. Management believes, NIMs should be around 3.2 pc mark in H2
Increase in cost of deposits is tapering. Seeing nice / steady increase in yields on advances. Also, the higher margin business / loans are growing faster ( like personal loans, credit cards, CV/Auto loans )
Fresh slippages in Q2 at 373 cr - very healthy
MFI disbursements @ around 200 cr/ Qtr. Growth looks sustainable ( again very high margin business )
Gross NPAs @ 2.26 vs 2.39 pc in Q1
Net NPAs @ 0.64 vs 0.69 pc in Q1
Most of unsecured loan book growth is attributable to existing bank customers and not to the - ‘new to Bank customers’
Disc: holding, biased, not SEBI registered
Q3 Business Update - https://www.bseindia.com/xml-data/corpfiling/AttachLive/5fdaa677-1a03-43f9-892e-18e224608a0b.pdf.
Deposits and advances growth remain strong, and CASA continues to fall. Increasingly, it looks like a lower NIM environment for most banks. Maybe a strong equity market correction is required to increase CASA balances.
December quarter updates :
NP 1007 crore Vs 804 Crore yoy.
Gross NPA at 2.29 % Vs 2.26 % qoq,
Net NPA at .64 % vs .64 % qoq.
Results are consistent.
But there is no positive movement in the stock.
What can be the reason?
Federal Bank - Stable Results
-
NII:
8.5% YoY -
Deposits: 19% YoY and 3% QoQ
-
Advances: 18% YoY and 3% QoQ
-
PPOP: 13% YoY - 1437 Cr
-
PAT: 25% YoY - 1007 Cr (Highest ever)
- Provisions: 431 Cr vs 371 Cr QoQ and 471 Cr YoY
-
Financial Ratios:
- ROE: 14.8%, down from 15.9%
- ROA: 1.39%
- NIMs: 3.19% vs 3.55%
-
Asset Quality:
- Slight deterioration QoQ
- GNPA: 2.29%
- NNPA: 0.64%
- PCR: 71%
-
Branch Expansion:
- Total 30 Branches added in Q3
- Total Branch count now at 1418
-
Valuation Metrics:
- Book Value: 115.41
- P/B: 1.3 / Annual EPS: 16.54
- TTM P/E: 9
- Valuations are considered cheap
-
Outlook:
- Compression on NIMs observed
- Expectation for NIM improvement after rate cuts, a matter of time
- Favorable compared to many PSU banks trading above 1 P/B
Federal Bank -
Q3 FY 24 Updates -
Deposits - 2.39 lakh cr, up 19 pc
Advances - 1.99 lakh cr, up 18 pc
Gross NPAs - 2.29 vs 2.43 pc
Net NPAs - 0.64 vs 0.73 pc
PCR @ 71 vs 69 pc
Total branches @ 1418, added 65 branches in FY 24
Cost/Income @ 51.9 vs 48.9
Yield on advances @ 9.37 vs 8.78 pc
Cost of funds @ 5.81 vs 4.71 pc
NIMs @ 3.19 vs 3.55 pc
RoA @ 1.39 vs 1.33 pc
RoE @ 14.80 vs 15.91 pc
Profit and Loss parameters ( standalone ) -
NII - 2123 vs 1957 cr, up 9 pc
Fee Income - 642 vs 543 cr, up 18 pc
Operating profit - 1437 vs 1274 pc, up 13 pc
Provisions - 431 vs 471 cr
Net Profit - 1007 vs 804 cr, up 25 pc
Segment wise growth in advances -
Retail - 65k cr, up 20 pc
Agri - 25.1 k cr, up 27 pc
Business banking - 15.97 k cr, up 18 pc
CV / CE - 2.7 k cr, up 66 pc
MFI - 2.3 k cr, up 160 pc
Commercial banking - 20.7 k cr, up 26 pc
Corporate banking - 71.9 k cr, up 14 pc
High margin products for the bank include - CV/CE, Personal, Credit Cards, Micro Fin and MSME loans - this cohort now forms 24 pc of Bank’s book vs 21 pc LY
Slippages for Q3 @ 480 cr ( within limits )
CASA + Deposits < 2 cr @ 81 pc of total deposits vs 88 pc LY
One of the large accounts worth 70 cr slipped in Q3 due factory fire at client’s factory. Likely to become standard in Q4
Bank is carrying 20 pc provisions on the restructured book. Current size of restructured book at 2200 cr
Aim to take the unsecured book to 10 pc of the total book from aprox 5 pc at present
Bank holding onto its advances growth guidance of 18-19 pc for FY 24. Aim to maintain the deposits growth rates in a similar band
Capital market investments / SIPs etc are also increasingly competing with banks for saving deposits. People are becoming more tech savvy and are managing their saving accounts more actively. Term deposits are relatively insulated
41 branches out of 75 opened LY have turned positive. Bank is very particular about location while opening a new branch
Disc: holding, biased, not SEBI registered