Federal Bank Posts Good Set Of March Quarter Numbers

On May 11, 2012, Federal Bank posted a good set of March 2012 quarter numbers. As soon as the result was announced the scrip headed northwards, gaining almost by 2 per cent. Currently the scrip is trading with a dip of 0.65 per cent lower at Rs 406.10. For the March quarter the total expenditure of the bank increased by 42 per cent to Rs 1,267 crore. However, lower provisioning, which was down by 80 per cent to Rs 15 crore, helped the bank to post robust bottomline. The net profit grew by 38 per cent to Rs 237 crore.

The asset quality showed a deteriorating trend on a YoY basis but improved on a sequential basis, which is a positive factor for the bank. The gross NPA increased by 14 basis points to 3.35 per cent on a YoY basis but declined by 62 basis points on a sequential basis. A similar trend was seen in the net NPA which increased by 7 basis points to 0.53 per cent but moved lower by 21 basis points on a sequential basis. The bank has made lower provisions but when we look at its provision coverage ratio (PCR) it was almost stable at 81 per cent. Of the total credit exposure, an aggregate of 10 per cent is towards three sectors viz. power, textile and telecom. We believe that with high PCR the bank might not face many headwinds when it comes to the quality of assets.

However, the bank is facing some issues regarding its net interest margin (NIM) which decreased by 44 basis points on a YoY basis and decreased by 38 basis points to 3.56 per cent. Further, with the interest rate taking a U-turn one would see some improvement in the bank’s NIM.

On the business front the bank posted decent growth. The total deposits increased by 13.77 per cent to Rs 48,937 crore while the net advances grew by 18.16 per cent to Rs 37,755 crore. As on March 31, 2012, the CASA deposits of the bank increased by 90 basis points to 27.4 per cent. The revenue from its treasury segment increased by 80 per cent to Rs 453 crore while it posted a loss of Rs 22 crore against a profit of Rs 9 crore in a similar period last year. The bank posted a robust bottomline growth of 339 per cent to Rs 125 crore.

Let us also look at the bank’s full year financial performance of FY12. The net interest income (NII) of the bank increased by 13 per cent to Rs 1,975 crore while the bottomline posted a robust growth of 35 per cent to Rs 753 crore. The operating profit of the bank increased marginally by 5 per cent to Rs 1,499 crore on the back of higher interest outgo which increased by 56 per cent. The bank made a lesser provision, which decreased by 36 per cent to Rs 352 crore, thus helping to post good bottomline growth.

The board of directors has recommended a dividend of 90 per cent i.e. Rs 9 on a face value of Rs 10 for the year FY12. The bank plans to take its number of branches from 950 to 1,000 before the second quarter of FY13. Overall the banking sector looks nervous in the short term and hence the stock may see some downside. However, with the reversal in interest rate the NIM of the banks would improve and therefore Federal Bank will perform well going ahead. On the valuation front it is available at a price to book value (P/BV) of around 1.23 times, which is fairly valued. One could invest in the scrip in a staggering manner, keeping in mind a long-term horizon to garner better returns.