16 October 2017
2QFY18 Results Update | Sector: Financials
Federal Bank
Buy
BSE SENSEX
32,634
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
Federal Bank (FB) recorded robust PPoP growth of 5%/23% QoQ/YoY (INR5.8b,
8% beat), led by 12%/24% QoQ/YoY NII growth, and controlled opex growth
(+5%/+18% QoQ/YoY; 7% beat) on curbed employee expenses (+7% YoY).
NII growth came in at 12%/24% QoQ/YoY (3% beat), aided by 25% YoY loan
growth and an increase in the CD ratio to 83% (75%/80% in 2QFY18/1QFY18).
NIM expanded 18bp QoQ to 3.31%, as 1QFY18 was impacted by interest
Financials & Valuations (INR b)
reversal of INR160m. Other income fell 13% QoQ as the base quarter had a
Y/E Mar
2018E 2019E 2020E
lumpy INR2b treasury income component. CI ratio rose 20bp QoQ to 50.8%.
NII
36.5
43.6
51.8
Loan growth of 6%/25% QoQ/YoY was broad-based, with strong growth across
OP
23.6
28.6
34.2
segments. Corporate growth was the strongest at 7%/43% QoQ/YoY, with
NP
10.2
12.9
16.0
retail/agri loans also showing strong traction (+17%/+24% YoY).
NIM (%)
3.2
3.2
3.2
Asset quality was stable, as total slippages declined ~11% QoQ to INR2.8b
EPS (INR)
5.5
6.6
8.2
(adjusted for lumpy slippage of INR1.05b in 1Q); GNPA/NNPA declined to
EPS Gr. (%)
15.1
19.9
23.9
2.39%/1.32% (-3bp/-7bp QoQ), with the slippage ratio down to 1.8% v/s 2.9%
BV/Sh. (INR)
63.4
69.2
76.6
in 1QFY18. Recoveries and upgrades increased 66% QoQ to INR1.6b, while
ABV/Sh. (INR) 57.3
62.6
68.6
write-offs came in at INR502m.
ROE (%)
9.6
10.0
11.3
Other highlights: a) FB witnessed 45% growth in new account opening, b)
ROA (%)
0.8
0.9
0.9
Payout (%)
business growth is picking up outside Kerala, with 31% YoY growth in each of
20.3
19.7
19.7
Valuations
retail/SME loans and 26% SA growth, c) Fed-fina contributing INR1.5b of loans
P/E(X)
22.5
18.8
15.2
each month.
P/BV (X)
2.0
1.8
1.6
Valuation and view:
We believe FB’s asset quality concerns, which are largely
legacy issues, are now largely behind. The bank is ahead of its corporate lending
peer banks on the asset quality curve, especially with its opportunistic entry into
the mid-commercial segment. Considering asset quality distractions in the PSU
space, we believe FB is well positioned to gain market share in highly rated
corporates. Post QIP, the bank is comfortably positioned with respect to capital
(Tier 1 ratio of 14.1%). We largely maintain estimates for FY18/19 and reiterate
Buy
with a target price of INR146 (2x Sept 2019 BV) based on the RI model.
S&P CNX
10,231
FB IN
1,719.0
139.2/2.1
125 / 62
7/25/58
1002
100.0
CMP: INR125
TP:INR146 (+17%)
Strong operating performance; Growth continues with asset quality stable
Research Analyst: Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
| Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 3980 4393
Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540
| Anirvan Sarkar
(Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Federal Bank
Exhibit 1: Quarterly performance v/s estimates and reasons for deviation (INR m)
Y/E MARCH
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
2QFY18A
8,989
23.8
2,872
11,861
6,029
5,832
22.8
1,768
4,064
1,427
2,637
31.0
2QFY18E
8,708
19.9
3,148
11,856
6,468
5,388
13.4
1,600
3,788
1,325
2,463
22.4
Var (%)
3
-9
0
-7
8
10
7
8
7
PPoP beat led to PAT beat
Source: MOSL, Company
Comments
NIMs were benefited by refinancing of liabilities
Lower than expected other income
Slower than expected growth in employee expenses
Provisions higher than expectation
70%+ of FB’s wholesale
book is now rated A or
above, compared to 67% in
1QFY17
Strong growth in corporate; SME book growth picking up outside Kerala
Loan growth of 6% QoQ (+26% YoY) was driven by corporate (+7%/+43%
QoQ/YoY) and agri (6%/24%). Retail book grew 5%/17% QoQ/YoY, while SME
book growth was relatively lower at 5%/9% QoQ/YoY. However, SME book
outside Kerala (INR8.8b, ~50% of total retail book, up from 46% in 2QFY17)
showed robust growth of 31% YoY.
Although corporate loan book now constitutes 39% of overall loan book, we
believe this is largely opportunistic acquisition of new corporate relationships
Although FB remains committed to its overarching strategy of calibrating its loan
mix towards SME and retail lending, we believe that the current environment is
offering the bank opportunities to acquire high-quality corporate customers,
especially in the mid-corporate space which is the focus area of the bank. Over
half (70%) of FB’s corporate portfolio is now rated A and above, compared to
67% a year ago period
Asset quality stabilizing with slippages declining across segments
Asset quality stabilized but
retail slippages continue to
trend up
Slippages moderated 11% sequentially even after adjusting for the lumpy
corporate slippage in 1QFY18. Recoveries and upgrades at INR1.6b were 66%
higher sequentially, while write-offs came in at INR502m.
Retail and agri slippages (retail/agri at INR1.06b/INR0.51b) continued to trend
upwards while SME slippages declined to INR1.07b (INR1.14b in 1QFY18) and
wholesale slippages came in at INR200m. The management commented that
retail asset quality issues were mostly behind the bank as dispensation periods
have ended across the board by the first half of the quarter
GNPA increased 4% QoQ while NNPA was flat QoQ; In percentage terms
GNPA/NNPA declined 3bp/7bp QoQ. Calculated PCR improved 210bp to 45.3%
OSRL book stood at INR13.4b (~1.7% of loans).
Strong CASA growth; Share of retail deposits at 97% of overall
FB registered healthy CASA growth of 19% YoY, driven by 21% growth in SA
deposits. CASA ratio declined ~50bp QoQ to 32.9% v/s 33.4% in 1Q.
The proportion of retail deposits stood at 97%, one of the best within the
banking system.
16 October 2017
2

Federal Bank
NIM improved 18bp QoQ to
3.31%
NIM improved driven by pick-up in loan growth
Overall NIMs increased 18bp QoQ to 3.31% due to a) increase in C-D ratio to
83% (75%/80% in 2QFY17/1QFY18), b) 5-6 bp of benefit from capital raise in
1QFY18, 3) refinancing of liabilities at lower cost. Also, 1QFY18 had an interest
reversal component of INR160m
2QFY18 conference call highlights
Balance sheet related
The bank registered 45% growth in new business (290K accounts per quarter
compared to 200K per quarter earlier).
Average CA growth at 14%.
Fedfina is contributing INR1.5b of loans per month. Details on Fedfina – INR13b
book, FY17 PAT INR250m, 1HFY18 PAT INR150m.
The bank does not intend to be aggressive in retail unsecured products.
The bank will consume 200bp of capital in next 2 years, post that the bank may
raise bonds.
Average ticket size is INR400-600m in corporate book with yield at ~9.25%.
77% of loan book is priced at MCLR.
Asset quality
The bank recorded INR60m provision for SRs in the quarter.
Retail asset quality challenges are behind them as dispensation-related pains
were over by 1st of half of 2QFY18.
The bank is well provided for its education loan exposure where some negative
impact might result from a government waiver, and is expected to play out
through Oct-Nov.
Breakup of GNPA movement: Upgrades – INR1.63b, write offs INR502m.
One IBC exposure remaining: Amtek Auto – INR150m of investment (50%
provided), INR220m loan (100% provided).
P&L related
Distribution fees and FX etc. and should start showing better growth toward
2HFY18 and FY19 as the bank is putting more efforts in that segment.
Opex growth is partially due to spend on people and marketing.
Provisions breakup: NPA – INR1.4b (1Q), INR2.3b (2Q), std. assets – INR200m
(2Q), INR30m (1Q).
The bank guided for 50-51% CI ratio for next six quarters as it intends to invest
in brand building.
5-6bp benefit to NIM from capital raise; there was some benefit on refinancing
of liabilities.
Renegotiation of employment contracts will happen in November.
Other expenses had one-time service charge of INR250m for buying a portfolio.
Others
Have added feet on street, RMs, digital capabilities, ramping up Fedfina, even
though branch count has not increased.
More clarity on fresh capital infusion in Fedfina should emerge toward the end
of the quarter.
16 October 2017
3

Federal Bank
Buy with a target price of
INR146 based on
Residual income model
(2x Sept 19 BV)
Valuation and view
FB’s cautious approach to loan growth over the past few years is now beginning
to manifest itself in a calibrated loan mix towards highly-rated corporate assets
and retail loans, resulting in upward-trending risk-adjusted NIMs (likely to settle
upwards of 3% over the next 12 months).
On the back of a consistently stable deposit franchise (highest proportion of
retail sub-INR10m deposits amongst its peers) and rising confidence in its
conscious asset-side strategy, we believe FB’s loan growth (26% YoY in 2QFY18)
engine is perfectly poised to fire. Our confidence also stems from the structural
process improvements in its corporate underwriting procedures, which will
drive the quality of FB’s incremental loan growth (22% CAGR over FY17-FY20).
Given the enormous credit challenges that other corporate lenders are facing,
FB’s relative competitive positioning within the sector continues to improve. We
expect FB to capitalize on this relative competitive position by acquiring new-to-
bank (NTB) relationships with highly-rated corporates and generate SME / retail
leads from such accounts.
While FB boasts of a very strong mix of savers (continually rising granularity of
deposits), the bank now needs to convert a higher proportion of its savers to
begin transacting through its own platforms. In this context, we build in 20%
CAGR in non-employee expenses as we believe that FB’s digital investments are
absolutely essential.
We believe that an improvement in FB’s efficiency will need to be driven by non-
linearity in its fee income. While we build in stable core fee income at ~80bp of
average assets over FY18-FY20E, we believe that greater traction on high-quality
transaction fee income will be an upside risk to our forecasts.
Post capital raise of INR25b via QIP in 1QFY18 Federal Bank is well-positioned in
terms of capital (Tier 1 ratio of 14.1%) that should support healthy growth over
the next 3 years.
We expect PAT CAGR (with an upside bias) of ~24% over FY17-20. Stock trades
at FY19 PE and PBV of 18.8x/1.8x. On the back of a healthy capitalization ratio
(Tier 1 of 14.1%) and improving ROE profile, we
maintain Buy
with a target price
of INR146 (Residual income model –2x Sept 19 BV). Key assumptions are a) risk
free rate of 7% b) Beta of 1.35x c) Risk Premium of 5% d) average growth of
~17% over FY16-36E and e) Terminal growth rate of 5%.
16 October 2017
4

Federal Bank
Exhibit 2: We largely maintain estimates
(INR b)
Net Interest Income
Other Income
Total Income
Operating Expenses
Operating Profits
Provisions
PBT
Tax
PAT
Loans
Deposits
Margins (%)
Credit Cost (%)
RoA (%)
RoE (%)
EPS
BV
ABV
FY18
35.4
13.9
49.3
25.9
23.4
7.3
16.1
5.6
10.4
917
1,182
3.06
0.80
0.8
10.0
5.4
62.3
58.9
Old
Estimates
FY19
43.4
14.3
57.7
30.1
27.5
7.1
20.4
7.1
13.3
1,146
1,477
3.05
0.60
0.9
10.5
6.8
67.7
64.1
Revised
Estimates
FY19
43.6
14.3
58.0
29.4
28.6
9.1
19.5
6.6
12.9
1,092
1,406
3.19
0.83
0.9
10.0
6.6
69.2
62.6
Change (%)
FY18 FY19 FY20
3.0 0.6 -0.2
-10.2 0.2 -3.5
-0.7 0.5 -1.1
-2.2 -2.6 -2.9
1.0 3.9 0.9
12.6 27.6 21.3
-4.2 -4.3 -5.7
-7.0 -7.1 -8.4
-2.8 -2.9 -4.2
-2.4 -4.7 -7.0
-1.7 -4.8 -7.8
FY20
52.0
17.1
69.0
35.1
33.9
8.2
25.6
9.0
16.7
1,432
1,846
2.97
0.55
0.9
12.1
8.6
74.6
71.7
FY18
36.5
12.4
48.9
25.3
23.6
8.3
15.4
5.2
10.2
895
1,162
3.20
0.88
0.8
9.6
5.5
63.4
57.3
FY20
51.8
16.5
68.3
34.1
34.2
10.0
24.2
8.2
16.0
1,332
1,702
3.16
0.75
0.9
11.3
8.2
3.1
76.6 1.9
68.6 -2.7
-2.7
2.2
-2.4
-4.0
2.7
-4.3
Source: MOSL, Company
Exhibit 3: One year forward P/BV
3.8
2.8
1.8
0.8
P/B (x)
Min (x)
Avg (x)
+1SD
Exhibit 4: One year forward P/E
3.3
2.7
2.2
1.8
0.9
5.0
Max (x)
-1SD
35.0
25.0
15.0
P/E (x)
Min (x)
Avg (x)
+1SD
3.0
21.1
16.7
30.7
Max (x)
-1SD
22.0
12.3
8.0
Source: MOSL, Company
Source: MOSL, Company
16 October 2017
5

Federal Bank
Exhibit 5: DuPont Analysis: Operating performance improvement will drive profitability
Y/E March
Interest Income
Interest Expended
Net Interest Income
Core Fee Income
Trading and others
Non Interest income
Total Income
Operating Expenses
Employee cost
Others
Operating Profits
Provisions
PBT
Tax
RoA
Leverage (x)
RoE
FY12
9.92
6.43
3.49
0.65
0.30
0.95
4.44
1.75
0.97
0.78
2.69
0.60
2.39
0.70
1.7
10.4
17.5
FY13
9.37
6.37
3.00
0.62
0.39
1.01
4.01
1.79
0.95
0.84
2.22
0.40
2.20
0.54
1.7
10.9
18.1
FY14
9.54
6.48
3.06
0.68
0.27
0.95
4.01
1.98
1.06
0.92
2.03
0.37
1.94
0.51
1.4
10.9
15.6
FY15
9.42
6.40
3.02
0.66
0.46
1.12
4.14
2.07
1.13
0.94
2.07
0.14
2.39
0.65
1.7
10.7
18.6
FY16
8.89
6.01
2.88
0.68
0.25
0.93
3.81
2.17
1.21
0.96
1.63
0.81
1.07
0.28
0.8
11.0
8.7
FY17
8.41
5.45
2.96
0.70
0.35
1.05
4.01
2.14
1.13
1.01
1.87
0.60
1.62
0.46
1.2
12.1
14.0
FY18E
8.34
5.44
2.90
0.84
0.15
0.99
3.89
2.01
1.06
0.95
1.88
0.66
1.22
0.42
0.81
11.9
9.6
FY19E
8.34
5.43
2.91
0.83
0.13
0.95
3.86
1.96
1.03
0.93
1.91
0.60
1.30
0.44
0.86
11.7
10.0
FY20E
8.38
5.49
2.89
0.81
0.11
0.92
3.81
1.90
0.99
0.92
1.91
0.56
1.35
0.46
0.89
12.7
11.3
Source: MOSL, Company
16 October 2017
6

Federal Bank
Story in charts
Exhibit 6: NIMs improved ~18bp QoQ to 3.31%
NIMs (%)
3.6
3.3
3.2
3.3
3.4
3.2
3.3
3.1 3.1
3.0
3.3 3.3 3.3 3.3
3.4
3.1
7.0
6.9
6.8
6.5
6.4
6.3
6.1
6.1
3.3
11.1
10.9
10.9
10.6
10.6
10.5
10.3
10.0
9.5
5.8
Exhibit 7: Funding cost benefits largely passed on
Yield on Loans (%)
Cost of Deposits (%)
Source: MOSL, Company
Source: MOSL, Company
Exhibit 8: Loan-to-deposit ratio picked up in the quarter (%)
C-D Ratio %
Exhibit 9: Deposit growth came in at 13% YoY
Deposits (INR b)
19
15
12
4
14 14
8
17
YoY Gr. (%)
23 23
17
18
12.6
14 14 12
12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: CASA growth continued with slight decline in
CASA ratio
CASA Ratio (%)
23
16
CASA growth YoY (%)
33
24
14
20 19
Exhibit 11: Proportion of granular retail deposits remains
high (%)
19
15 13 14
20
19 18
17 19 19
92 94
98 98
97 97
96 95 95 95 95 96 97 98
94 96 94
Source: MOSL, Company
Source: MOSL, Company
16 October 2017
7

Federal Bank
Exhibit 12: Growth led by highly rated corporates (%)
Retail
SME and Agri Loans
Corporate Advances
Exhibit 13: Declining emphasis on bulk gold lending (%)
Housing
Gold
Mortgage
Others
38 34 32 33 33 32 32 31 30 32 39 35 35 37 37 39 39
33 36 37 37 36 37 38 38 39 38 37 36 35 34 34 32 32
32 33 33 32 32 33 31 32 32 32 30 29 31 31 30 29 29
21 20 21 21 22 21 22 23 23 22 29
33 31 30 30
12 12 13 14 15 15 16 17 18 19
18 17 18 18 18
25 26 25 23 21 19 17 15 14 13
11 10 10 9 8
42 42 41 41 42 44 45 45 45 46 42 40 42 42 43
Source: MOSL, Company
Source: MOSL, Company
Exhibit 14: Rating mix remains healthy (%)
A and above
31
8
61
28
7
65
19
14
67
BBB
16
12
72
< BBB
17
13
70
11
19
71
12
18
70
12
18
70
Exhibit 15: Slippages declined in the quarter (INR b)
5.4
3.2
1.5 1.5
1.9 1.8 1.8
2.3
1.8
4.0 3.9
2.8 2.7 2.7
2.4
4.3
2.8
43
15
42
41
22
37
45
15
40
Source: MOSL, Company
Source: MOSL, Company
Exhibit 16: GNPAs increase 4% sequentially; PCR increases
210bp QoQ
GNPA (%)
72 70 70 70 69 69
65 63
NNPA (%)
PCR (%)
Exhibit 17: Credit costs declined in the quarter (%)
Credit Cost
2.0
55
48 43 43 43 44 46 43 45
0.5 0.6 0.5
0.9 1.0
0.2
0.2
0.3
1.2
0.9
0.6 0.6
0.4
0.7
Source: MOSL, Company
Source: MOSL, Company
16 October 2017
8

Federal Bank
Exhibit 18: Quarterly Snapshot (INR b)
FY16
INR m
Profit and Loss
Net Interest Income
Other Income
Trading profits
Forex Income
Recoveries
Other Non interest inc.
Total Income
Operating Expenses
Employee
Others
Operating Profits
Provisions
NPA provisions
PBT
Taxes
PAT
Asset Quality
GNPA
NNPA
GNPA (%)
NNPA (%)
PCR (Calculated, %)
PCR (Reported, %)
Slippages
Slippage Ratio (%)
Margins (%)
Yield on loans
Cost of Deposits
NIM
Balance sheet (INR b)
Deposits
CASA Deposits
% of overall Deposits
Savings Deposits
Current Deposits
Core Deposits
% of overall Deposits
Investments
Advances
Retail
Total Assets
1Q
6,048
1,939
380
410
290
859
7,987
4,315
2,523
1,792
3,672
1,531
1,170
2,141
727
1,414
2Q
6,083
1,823
260
340
190
1,033
7,906
4,540
2,489
2,051
3,366
873
1,270
2,493
880
1,613
3Q
6,057
1,828
230
190
410
998
7,885
4,630
2,586
2,044
3,255
751
390
2,504
877
1,627
4Q
6,861
2,363
410
360
240
1,353
9,224
5,278
2,930
2,348
3,945
3,886
2,720
59
-44
103
16,678
9,500
3
2
43
5,360
4
11
7
3
792
257
32.5
214
43
775
97.9
222
581
173
914
1Q
6,927
2,370
830
270
130
1,140
9,297
5,039
2,894
2,144
4,259
1,685
1,268
2,574
901
1,673
17,473
9,945
2.9
1.7
43
2,800
2.3
10.6
6.5
3.3
811
266
32.8
227
40
793
97.7
229
591
174
938
2Q
7,262
2,616
860
270
230
1,256
9,878
5,128
2,916
2,212
4,750
1,684
980
3,066
1,053
2,013
FY17
3Q
7,914
2,747
860
330
180
1,377
10,661
5,912
3,197
2,714
4,749
1,588
1,040
3,161
1,104
2,057
4Q
8,424
2,821
540
410
160
1,711
11,245
5,753
2,630
3,123
5,492
1,227
770
4,265
1,699
2,566
17,271
9,412
2
1
46
2,440
2
10
6
3
977
318
32.6
264
54
919
94.1
282
733
218
1,150
1Q
8,007
3,291
1,120
340
370
1,461
11,298
5,719
2,985
2,735
5,579
2,364
2,364
3,214
1,113
2,102
18,679
10,613
2.4
1.4
43
4,250
2.9
10.0
6.1
3.1
958
320
33.4
270
51
927
96.7
267
763
222
1,164
FY18
2Q
8,989
2,872
750
410
170
1,542
11,861
5,951
3,127
2,902
5,910
1,768
1,400
4,143
1,427
2,715
19,490
10,664
2.4
1.3
45
2,840
1.4
9.5
5.8
3.3
972
320
32.9
28
5
943
97.0
263
806
233
1,218
Variation (%)
QoQ
YoY
12
-13
-33
21
-54
6
5
4
5
6
6
-25
-41
29
28
29
4
0
-3
-7
210
-33
-147
-45
-30
18
1
0
-51
-90
-90
2
33
-1
6
5
5
24
10
-13
52
-26
23
20
16
7
31
24
5
43
35
36
35
7
3
-39
-29
242
7
-68
-110
-61
0
13
20
189
-88
-89
16
252
9
25
17
21
13,046 14,987 16,841
4,845
6,748
8,761
2.6
2.9
3.2
1.0
1.3
1.7
63
55
48
3,170
2.8
11.4
7.1
3.1
721
226
31.3
189
37
696
96.5
270
496
160
843
4,030
3.3
11.1
7.0
3.1
738
235
31.9
193
42
719
97.5
232
509
164
863
3,870
3.2
10.9
6.9
3.0
748
240
32.1
201
39
731
97.8
246
528
168
885
18,197 19,516
10,397 11,024
2.8
2.8
1.6
1.6
43
44
2,660
2.1
10.6
6.4
3.3
863
268
31.0
224
44
815
94.5
242
647
200
1,005
2,740
2.1
10.5
6.3
3.3
922
320
34.7
266
53
888
96.2
285
696
213
1,115
Source: MOSL, Company
16 October 2017
9

Federal Bank
Exhibit 19: Valuation metrics
Rating
66
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
IDFC Bk
FB
DCBB
JKBK
SIB
Equitas
RBL
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
CBK
UNBK
OBC
INBK
Public Aggregate
Banks Aggregate
HDFC*
LICHF
IHFL
PNBHF
GRHF
REPCO
DEWH
Housing Finance
SHTF
MMFS
BAF
CIFC
SCUF
LTFH
MUTH
CAFL
SKSM
Asset Finance
NBFC Aggregate
Financials
FY19E
Buy
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Neutral
Neutral
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
Neutral
Neutral
Neutral
Buy
CMP
Mcap
EPS (INR)
P/E (x)
FY19E
10.3
22.5
13.7
26.4
16.0
21.9
17.9
18.3
18.3
8.9
8.6
25.2
23.2
8.1
12.1
20.8
6.6
6.5
6.6
5.4
7.1
P/BV (x)
FY18E
1.27
4.78
2.14
4.67
3.39
4.44
1.28
2.00
2.28
0.66
1.20
2.26
3.26
0.97
0.73
0.63
0.87
0.62
0.42
0.30
0.83
RoA (%)
RoE (%)
(INR) (USDb) FY18E FY19E FY18E
274
26.9
14.5 16.6
12.8
1,857 73.4
68.2 82.6
27.2
521
19.6
21.8 38.1
23.8
1,085 30.7
32.4 41.0
33.4
368
13.0
18.5 22.9
19.9
1,717 16.2
60.9 78.6
28.2
58
3.1
2.8
3.2
20.9
125
3.1
5.4
6.8
23.2
190
0.9
8.4
10.4
22.7
74
0.6
3.9
8.3
19.0
32
0.7
1.9
3.8
17.4
153
0.8
1.7
6.1
90.0
521
3.0
17.2 22.5
30.3
252
134
137
138
307
127
115
271
33.7
4.4
2.2
5.0
2.6
1.4
0.6
2.0
14.6
5.8
-11.2
9.5
30.1
9.0
17.1
34.4
26.8
11.0
6.6
20.8
47.0
19.1
21.4
38.3
15.1
22.9
-12.2
14.5
10.2
14.0
6.8
7.9
FY19E FY18E FY19E FY18E FY19E
1.08
1.14 1.15
8.6
9.3
4.11
1.84 1.85 18.8
19.7
1.90
0.81 1.19
9.3
14.7
3.99
1.84 1.99 15.0
16.3
2.90
1.78 1.80 18.3
19.5
3.79
1.82 1.89 16.9
19.0
1.21
0.74 0.71
6.3
6.9
1.84
0.82 0.86 10.0
10.5
2.05
0.95 0.96 11.4
11.8
0.62
0.23 0.44
3.5
7.2
1.08
0.42 0.75
6.7
12.6
2.09
0.58 1.65
2.5
8.6
2.92
1.28 1.28 13.0
13.3
0.87
0.69
0.63
0.79
0.57
0.40
0.29
0.76
0.36
0.17
-0.19
0.31
0.29
0.14
0.22
0.73
0.60
0.30
0.10
0.61
0.41
0.27
0.26
0.72
7.0
3.2
-5.2
6.1
6.2
3.0
4.6
10.9
11.4
5.9
3.0
12.4
9.1
6.1
5.4
11.2
Buy
Neutral
Buy
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
1,764
658
1,294
1,498
517
637
559
1,101
431
1,889
1,127
2,066
204
502
763
1,019
43.0
5.1
8.4
3.8
2.9
0.6
2.6
3.8
3.7
17.3
2.7
2.1
5.7
3.1
1.1
2.1
39.9
41.6
84.2
48.1
9.9
33.7
37.7
45.4
48.9
105.6
65.1
11.7
38.4
47.1
25.7
15.8
15.4
31.1
52.0
18.9
14.8
13.8
31.1
41.6
20.1
17.5
29.8
13.0
23.2
34.1
20.1
13.5
12.3
23.0
44.4
16.6
11.9
10.7
24.3
30.0
16.6
13.3
20.1
11.3
18.0
18.5
4.49
2.68
4.01
4.08
15.59
3.00
1.98
1.97
3.59
6.64
3.47
2.40
4.03
2.61
2.89
4.66
3.19
2.31
3.53
3.58
12.87
2.58
1.74
1.71
3.30
5.58
2.93
2.09
3.45
2.22
2.53
3.75
1.79
1.44
3.20
1.52
2.45
2.18
1.25
2.67
1.73
3.61
2.85
3.34
1.61
4.82
1.74
3.24
1.81
1.51
3.16
1.48
2.39
2.14
1.33
3.06
1.90
3.69
2.94
3.84
2.09
4.94
1.80
4.03
18.6
18.2
27.6
13.8
33.0
17.1
14.1
15.0
12.0
20.1
18.6
14.6
14.7
21.8
13.2
15.1
17.8
18.5
30.6
16.6
31.8
16.7
15.6
16.9
14.2
20.2
19.2
16.8
18.5
21.2
15.0
22.4
80.0 102.4
13.9 17.8
45.4 62.9
56.0 68.1
118.3 155.3
6.8
10.1
38.7 44.4
32.8 42.4
29.9 54.9
Source: MOSL, Company
16 October 2017
10

Federal Bank
Financials and Valuations
Income Statement
Y/E March
Interest Income
Interest Expense
Net Interest Income
Change (%)
Non Interest Income
Net Income
Change (%)
Operating Expenses
Pre Provision Profits
Change (%)
Provisions (excl tax)
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Equity Dividend (Incl tax)
Core PPP*
Change (%)
*Core PPP is (NII+Fee income-Opex)
2012
55,584
36,050
19,534
11.8
5,323
24,857
9.8
9,793
15,065
5.6
3,370
11,695
3,927
33.6
7,768
32.3
1,789
14,244
3.1
2013
61,676
41,929
19,747
1.1
6,644
26,391
6.2
11,795
14,596
-3.1
2,658
11,938
3,556
29.8
8,382
7.9
1,801
12,538
-12.0
2014
69,461
47,175
22,286
12.9
6,938
29,225
10.7
14,421
14,804
1.4
2,684
12,120
3,731
30.8
8,389
0.1
1,989
13,242
5.6
2015
74,195
50,391
23,804
6.8
8,783
32,587
11.5
16,309
16,278
10.0
1,067
15,210
5,153
33.9
10,057
19.9
2,268
13,721
3.6
2016
77,482
52,404
25,077
5.3
8,082
33,159
1.8
18,921
14,238
-12.5
7,041
7,197
2,440
33.9
4,757
-52.7
1,449
12,963
-5.5
2017
86,774
56,247
30,526
21.7
10,818
41,345
24.7
22,095
19,249
35.2
6,184
13,065
4,757
36.4
8,308
74.7
1,868
16,163
24.7
2018E
1,04,945
68,446
36,499
19.6
12,441
48,940
18.4
25,294
23,646
22.8
8,254
15,392
5,233
34.0
10,158
22.3
1,543
21,745
34.5
(INR Million)
2019E
1,25,179
81,531
43,648
19.6
14,307
57,955
18.4
29,364
28,591
20.9
9,063
19,528
6,639
34.0
12,888
26.9
1,634
26,690
22.7
2020E
1,50,189
98,354
51,835
18.8
16,453
68,288
17.8
34,099
34,189
19.6
9,993
24,195
8,226
34.0
15,969
23.9
1,634
32,288
21.0
Balance Sheet
Y/E March
Share Capital
Reserves & Surplus
Net Worth
Deposits
Change (%)
of which CASA Dep
Change (%)
Borrowings
Other Liabilities & Prov.
Total Liabilities
Current Assets
Investments
Change (%)
Loans
Change (%)
Fixed Assets
Other Assets
Total Assets
2012
3,421
53,642
57,063
4,89,371
13.8
1,34,759
16.6
42,410
17,423
6,06,268
35,326
1,74,025
19.7
3,77,560
18.2
3,261
16,096
6,06,268
2013
3,421
60,225
63,647
5,76,149
17.7
1,56,521
16.1
51,870
18,831
7,10,496
37,200
2,11,546
21.6
4,40,967
16.8
3,975
16,808
7,10,496
2014
3,421
66,085
69,506
5,97,313
3.7
1,86,638
19.2
56,880
22,243
7,45,941
45,294
2,41,179
14.0
4,34,361
-1.5
4,250
20,859
7,45,941
2015
3,427
73,955
77,381
7,08,250
18.6
2,17,835
16.7
23,082
19,791
8,28,505
47,800
2,05,688
-14.7
5,12,850
18.1
4,666
57,500
8,28,505
2016
2017E
2018E
3,438
3,448
3,877
77,474
84,108 1,19,162
80,912
87,556 1,23,039
7,91,717 9,76,646 11,62,209
11.8
23.4
19.0
2,60,526 3,20,528 3,86,078
19.6
23.0
20.5
21,766
58,973
52,018
19,905
26,594
30,716
9,14,300 11,49,769 13,67,982
54,198
74,522
81,353
2,22,175 2,81,961 3,26,108
8.0
26.9
15.7
5,80,901 7,33,363 8,94,702
13.3
26.2
22.0
5,200
4,895
5,286
51,826
55,029
60,532
9,14,300 11,49,769 13,67,982
2018E
3,877
1,30,416
1,34,294
14,06,273
21.0
4,67,289
21.0
58,015
33,787
16,32,369
90,786
3,77,744
15.8
10,91,537
22.0
5,716
66,585
16,32,369
2018E
3,877
1,44,752
1,48,629
17,01,590
21.0
5,70,524
22.1
64,731
37,166
19,52,116
1,09,512
4,31,495
14.2
13,31,675
22.0
6,190
73,244
19,52,116
Asset Quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
Slippage Ratio
Credit Cost
PCR (Excl Tech. write off)
E: MOSL Estimates
13,009
1,990
3.4
0.5
2.18
0.74
84.7
15,540
4,319
3.4
1.0
2.14
0.58
72.2
10,874
3,216
2.5
0.7
1.18
0.55
70.4
10,576
3,733
2.0
0.7
1.87
0.55
64.7
16,677
9,500
2.8
1.6
3.70
1.07
43.0
17,270
9,412
2.3
1.3
1.85
0.74
45.5
18,773
10,477
2.1
1.2
1.5
0.9
44.2
20,408
10,910
1.9
1.0
1.5
0.8
46.5
24,099
13,505
1.8
1.0
1.5
0.8
44.0
16 October 2017
11

Federal Bank
Financials and Valuations
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost-Int. Bear. Liab.
Avg. Cost of Deposits
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Int. Expense/Int.Income
Fee Income/Net Income
Non Int. Inc./Net Income
Efficiency Ratios (%)
Cost/Income*
Empl. Cost/Op. Exps.
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio
CASA Ratio
Investment/Deposit Ratio
G-Sec/Investment Ratio
CAR
Tier 1
2012
10.7
12.0
8.2
7.4
7.2
3.4
3.8
2013
10.1
11.3
7.6
7.2
7.2
2.8
3.2
2014
10.3
11.4
7.8
7.4
7.2
2.9
3.3
2015
10.4
11.5
7.4
7.3
7.1
3.2
3.3
2016
10.0
10.4
8.2
6.8
6.7
3.2
3.2
2017E
9.3
10.0
7.1
6.1
6.1
3.2
3.3
2018E
9.2
10.0
7.0
6.1
6.1
3.1
3.2
2018E
9.1
9.9
6.9
6.1
6.1
3.0
3.2
2018E
9.1
9.9
6.7
6.1
6.1
3.0
3.2
14.4
1.4
64.9
14.7
21.4
13.9
1.3
68.0
15.6
25.2
12.6
1.2
67.9
17.0
23.7
13.7
1.3
67.9
15.8
27.0
6.0
0.5
67.6
17.8
24.4
9.9
0.8
64.8
17.4
26.2
9.6
0.8
65.2
21.5
25.4
10.0
0.9
65.1
21.4
24.7
11.3
0.9
65.5
21.3
24.1
40.7
55.5
48.5
53.1
52.1
53.5
54.3
54.7
59.3
55.6
57.8
52.7
53.8
52.9
52.4
52.4
51.4
51.9
77.2
27.5
35.6
66.3
16.6
15.9
76.5
27.2
36.7
68.9
14.7
14.1
72.7
31.2
40.4
65.6
15.1
14.6
72.4
30.8
29.0
82.0
15.5
14.8
73.4
32.9
28.1
97.1
13.9
13.4
75.1
32.8
28.9
70.7
12.4
11.8
77.0
33.2
28.1
76.5
14.3
13.7
77.6
33.2
26.9
76.5
13.1
12.5
78.3
33.5
25.4
76.5
12.1
11.5
Valuation
Book Value (INR)
Change (%)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
EPS (INR)
Change (%)
Price-Earnings (x)
Dividend Per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
33.4
11.7
32.6
4.5
32.3
0.9
37.2
11.5
35.6
4.9
7.9
0.9
40.6
9.2
39.4
4.9
0.1
1.0
45.2
11.2
43.7
5.9
19.7
1.1
47.1
4.2
43.5
2.8
-52.9
0.7
50.8
7.9
2.5
47.2
2.6
4.8
74.1
25.9
1.1
0.9
63.4
24.9
2.0
57.3
2.2
5.5
15.1
22.5
0.8
0.6
69.2
9.2
1.8
62.6
2.0
6.6
19.9
18.8
0.8
0.7
76.6
10.7
1.6
68.6
1.8
8.2
23.9
15.2
0.8
0.7
16 October 2017
12

Federal Bank
Corporate profile
Company description
Federal Bank is an old age Private Sector Bank with
a history that dates back to the pre-independence
era. The bank has a dominant presence in Southern
India especially in Kerala. Mr. Shyam Srinivasan,
with experience of over 20 years with MNC banks,
took charge as the MD&CEO of the bank in 2010.
Under his leadership the bank is increasing the
presence and visibility at the national level. Federal
Bank has 1,252 branches and 1,655 ATMs across the
country.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Sep-17
Promoter
DII
FII
Others
0.0
34.3
37.8
27.9
Jun-17
0.0
33.9
39.3
26.8
Sep-16
0.0
30.1
22.2
47.8
Source: Capitaline
Exhibit 3: Top holders
Holder Name
HDFC Trustee Company Limited Along with
various schemes
Amansa Holdings Private Limited
Reliane Capital Trusteees Co Ltd Along with
various schemes
Yusuffali Musaliam Veettil Abdul Kader
DSP Black Rock Along with various schemes
% Holding
4.3
3.7
3.4
3.3
3.1
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Shyam Srinivasan
Ashutosh Khajuria
Ganesh Sankaran
Girish Kumar Ganapathy
Designation
Managing Director & CEO
Executive Director
Executive Director
Company Secretary
Exhibit 5: Directors
Name
Dilip Gena Sadarangani
Harish H Engineer
Nilesh S Vakamsey
Balagopal Chandrasekhar
Name
Grace Elizabeth Koshie
K M Chandrasekhar
Sudhir M Joshi
Shubhalakshmi Panse
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Deloitte Haskins & Sells
M P Chitale & Co
Type
Statutory
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
FY19
FY20
MOSL
forecast
5.5
6.6
8.2
Consensus
forecast
6.0
7.7
9.4
Variation (%)
-8.3
-14.8
-12.5
Source: Bloomberg
Source: Capitaline
16 October 2017
13

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock
broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed
public company, the details in respect of which are available on
www.motilaloswal.com.
MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock
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Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:
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or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Federal Bank
Disclosure of Interest Statement
Analyst ownership of the stock
Federal Bank
No
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www.nseindia.com, www.bseindia.com.
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Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.
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agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
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Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is
a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined
in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the
following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
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is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their
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such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its
own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options,
another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy,
completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be
treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may
be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent
in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this
report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed
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eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring
Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-30801085.
Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset
Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers
wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
16 October 2017
14