A stronger strategic focus on improving retail business, digital experience and reducing stress will continue to aid healthy performance, going ahead. Return ratios are also seen improving led by margin expansion, operating leverage and stable asset quality levels. Hence we believe that the FBL stock should be purchased at the current price for a price target of around Rs 125 over the next 15 to 18 months wherein the stock is current valued at 1.12x PB based on FY20 and 1x FY20 BV. We expect that FBL could easily command a PB of 1.50x based on its earnings profile, steady deposit and CASA levels and focus on retail which could help the bank grow at a healthy pace ahead.
We are apprehensive about Minda’s growth and profitability in FY20 in the wake of unprecedented domestic slowdown and KTSN challenges with possible overhangs in Q1FY21 as well. Accordingly, we downgrade revenue estimate and expect Minda Corp to post revenues at a CAGR of 3.5% (10% earlier) and profits at CAGR of -2% (15% earlier) over FY19-FY21E. However, we also take cognizance of the fact that Minda Corp’s stock price has over corrected (down 47% in FY20 itself) and Minda Corp is still wellpositioned (ex KTSN) in the industry owing to high entry barriers and being a diversified player in auto ancillary industry, uptick in its Mechatronics business and sticky clientele. We therefore maintain a BUY in Minda Corp. at reduced P/E multiple of 14XFY21E (5 year PE average -1 STD) to arrive at a target price of Rs 99 (28%upside).
Valuations: Federal Bank is currently trading at Adj. P/B of 1.51/1.35 for FY20E and FY21E respectively. Though we are cautious over the retail slippages and bank’s exposure to housing finance companies, we expect higher return ratios going forward. Hence, we maintain our valuation at 1.5x Adj. BV of FY21E and retain our Accumulate rating with a revised downward target price of Rs110.
Lower incremental stress from corporate book is expected to aid the Bank’s overall slippages, even as we continue to be watchful of its SME and retail portfolio in Kerala. Going forward, we expect decline in credit cost, improving operating leverage and traction in fee-based income to drive its profitability. We maintain our BUY recommendation on the stock with a revised Target Price of Rs120 (from Rs115 earlier), implying an adjusted PBV of 1.6x FY21E (from 1.5x earlier).
Despite factoring higher slippages and provisions towards stressed exposures, FB can deliver earnings CAGR of ~28% led by operating leverage and better core performance, especially asset quality. To be sure, FB has stumbled in the past but several corrective initiatives are probably paying off, finally. UPGRADE to BUY with a TP of Rs 117.We upgrade Federal Bank to BUY (TP Rs 117, 1.5x June-21 ABV of Rs 77) after a better than expected show across parameters, in a seasonally weak quarter. Further consistency can lead on to significantly better outcomes.
We believe the Bank is on track to achieve return ratios trajectory like RoA / RoE to healthy levels of 1.1%/13% by FY21E. Healthy loan growth with a sustainable margin, improving yields and strong operating performance drives our earnings growth. At CMP of Rs 107, currently it is trading at 1.5(x) to its FY21E ABV, which is quite reasonable at this juncture. We have valued the stock at 1.7x P/ABV and arrived at a fair value of Rs 122 per share, giving a potential upside of 14%.
In all major perimeters Federal Bank did well, with PAT, deposits and advances growing respectively 46%, 19% and 18% y/y. However, asset quality slightly deteriorated with GNPA increasing 7bps sequentially to 2.99% and slippages came at 1.5% (of the loan book). We retain our positive view on the bank, given the strong business growth prospects, steady margins and stable credit costs. We retain our Buy recommendation, at a higher TP of Rs 130 (earlier Rs115).
A strategic focus on improving retail business, digital experience and reducing stress will continue to aid healthy performance, going ahead. Return ratios are seen improving led by margin expansion, operating leverage and stable asset quality. Overall, the bank is on the path towards building strong sustainable earnings. We maintain our positive stance on the stock with a BUY rating and an unchanged target price of Rs 125 per share, valuing the stock at ~1.7xFY21E ABV.
FBL posted a net interest income (NII) growth of 18% YoY to Rs11,542mn, PPOP growth of 30% YoY to Rs7,828mn and PAT growth of 46% YoY to Rs3,842mn. We have revised our estimates for FY20/FY21 and have retained Buy rating on FBL, revising our target price to Rs135 (from Rs134 earlier) and valuing the stock at 1.5x FY21E P/BV.
FEDBK currently trades at ~1.3x its FY2021E book value, which we believe is attractive. The tenure of the bank’s MD and CEO is up for renewal (current tenure is till September 2019) and will be a key monitorable. Hence, while there are few overhangs present, we believe present valuation and improving business mix are positive factors, making risk-reward in favour of the investor. We maintain our Buy rating with a revised PT of Rs. 128.
FB has maintained strong momentum in business growth and is reporting a gradual improvement in operating earnings. It has limited exposure to stressed entities, while the healthy coverage ratio of 67.4% (including TWO) will likely facilitate controlled credit costs. With stronger growth in retail and management guidance of increasing the retail mix to 50%, the margins will likely improve gradually. We raise our FY20/21 PAT estimate by 0.9%/2.4%. Over FY19-21, we expect 20bp RoA expansion and RoE improvement to 13.3%.Maintain Buy with revised PT of INR125 (1.6x FY21E ABV).
While on operating metrics bank expects loan growth of 18-20% with NIM improving to 3.2% and continued fee traction which will help achieve ROA of 1.1/1.25% by FY20/FY21. We believe, return ratios are on track to improve with moderate risk on asset quality but valuation remains reasonable, hence we retain BUY with revised TP of Rs121 (from 112) based on 1.65x Mar-21 ABV.
We recently met with Mr. Shyam Srinivasan, CEO of Federal Bank (FBL) and gleaned incremental insight into the strategy of the company. We share our detailed takeaways below. We revise our estimates for FY20/FY21 and retain Buy rating, revising our target price to Rs135 (from Rs134 earlier), valuing the stock at 1.5x FY21E (or 1.8x FY20E) P/BV.FBL remains one of our top picks in the banking sector.
The Bank continues to enjoy a strong retail liability franchise with high share of retail deposits. Healthy traction in fee-based income over the last few quarters is also expected aid earnings. Additionally, low incremental stress from corporate book should aid overall slippages. Nonetheless, we would remain watchful of the Bank’s Kerala portfolio for any likely volatility in slippages. We maintain our BUY recommendation on the stock with an unchanged Target Price of Rs115, implying an adjusted PBV of 1.5x FY21.