Buy Federal Bank; target of Rs 125: ICICI Direct

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ICICI Direct's research report on Federal Bank

Slippages increased to Rs 415 crore vs. Rs 256 crore in Q4FY19, largely led by stress in retail & SME book. Within retail, majority of stress was witnessed in home state Kerala on the back of stress post moratorium. However, the management expects a swift recovery. The bank had exposure of ~Rs 245 crore to three SPV of IL&FS out of which exposure to one SPV worth Rs 32 crore has been downgraded & balance exposure still stays standard. Overall higher slippages led to QoQ increase in absolute GNPA to Rs 3394 crore and GNPA ratio by ~7 bps to 2.99%. Credit cost for the quarter was at 17 bps. The management is confident of containing it below 60 bps for FY20.

Outlook

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.

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