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Anand Rathi Report
Higher treasury income and Net Interest Margin expansion led to strong, 19%, y/y growth in Federal Bank’s Q1 operating profits. Higher provisions incl. Rs 930 million Covid-related led to flat 4% y/y earnings growth. Higher accelerated provisions led to a 510 basis point sequential increase in Provision Coverage Ratio. The moratorium book for the bank sharply declined. We maintain a Buy with a target price of Rs 58 (earlier Rs 55).
With an expected higher slippage rate in H2 FY21, we have built in 2% credit costs for financial year 21. Higher credit costs combined with weaker operating performance (attributed to slower business growth) would keep the bank’s earnings weak in FY21. We estimate a 0.3% Return on Assets for FY21, and 0.9% for FY22.
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