Buy Federal Bank, target price Rs 80: Motilal Oswal

Motilal Oswal has buy call on Federal Bank with a target price of Rs 80. The current market price of Federal Bank Ltd. is Rs 70.5.

Federal Bank Ltd., incorporated in the year 1931, is a banking company (having a market cap of Rs 13803.15 Crore).

Financials
The Bank reported a Gross Non Performing Assets (Gross NPAs) of Rs 3591.72 Crore (.00 % of total assets) and Net Non Performing Assets (Net NPAs) of Rs 1249.85 Crore (.00% of total assets). For the quarter ended 30-09-2020, the company reported a Consolidated Interest Income of Rs 2853.76 Crore, up .92 % from last quarter Interest Income of Rs 2827.74 Crore and up 4.88 % from last year same quarter Interest Income of Rs 2720.87 Crore. The bank reported net profit after tax of Rs 315.70 Crore in latest quarter.

Investment Rationale
FB posted a slight increase in sequential loan base, driven by healthy loan growth in its retail asset portfolio, led by gold loans. The bank’s liability franchise remains strong. CASA mix is improving, with retail deposit mix over 90%, which is likely to keep margin steady. It has maintained one of the highest LCRs among banks. On the asset quality front, PCR has strengthened to ~66% and the management expects restructuring of up to 3% of loans as collection efficiency has improved to 95% from Sep’20. It expects credit cost to remain elevated as slippages would increase during 2HFY21. It maintains Buy rating with a TP of INR 80 per share (0.9x Sep-22E ABV)

Promoter/FII Holdings
Promoters held 0 per cent stake in the company as of Sept 30, 2020, while FIIs held 31 per cent, DIIs 37.2 per cent and public and others 31.9 per cent