15 January 2018
Q3FY18 Results Update | Sector: Financials
Federal Bank
Buy
BSE SENSEX
34,844
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
10,742
FB IN
Strong core operating performance; asset quality deteriorates slightly
1,967
FB recorded PPoP growth of -4%/18% QoQ/YoY (INR5.6b; 4% miss), driven by a
222.8 / 3.5
5% miss on total income (24% beat on other income, which declined 20%/13%
128 / 73
QoQ/YoY to INR2.29b). The impact, however, was partly offset by a 5% beat on
1/-10/28
opex, which grew 2%/4% QoQ/YoY to INR6.2b, as employee expenses fell
1126
4%/6% QoQ/YoY. Core PPoP growth was strong at 5%/37% QoQ/YoY.
100.0
NII growth came in at 6%/20% QoQ/YoY (1% beat), aided by 22% YoY loan
CMP: INR113
TP:INR149 (+32%)
Financials & Valuations (INR b)
Y/E Mar
2018E 2019E
NII
36.3
43.2
OP
23.5
28.2
NP
10.0
12.6
NIM (%)
3.2
3.2
EPS (INR)
5.5
6.5
EPS Gr. (%)
13.3
19.1
BV/Sh. (INR)
63.4
69.0
ABV/Sh. (INR)
56.7
62.1
ROE (%)
9.4
9.8
ROA (%)
0.8
0.8
Payout (%)
20.3
19.7
Valuations
P/E(X)
20.7
17.4
P/BV (X)
1.8
1.6
2020E
51.8
34.1
15.9
3.2
8.2
26.1
76.4
68.6
11.3
0.9
19.7
13.8
1.5
Quarterly Performance (Consolidated)
Net Interest Income
% Cha nge (YoY)
Othe r I ncome
Net Income
Ope ra ti ng Expe ns e s
Operating Profit
% Cha nge (YoY)
Othe r Provi s i ons
Profit before Tax
Ta x Provi s i ons
Net Profit
% Cha nge (YoY)
Operating Parameters
NI M (Ca l , %)
De pos i t Growth (%)
Loa n Growth (%)
CD Ra ti o (%)
Asset Quality
Gros s NPA (I NR b)
Gros s NPA (%)
Ne t NPA (I NR b)
Ne t NPA (%)
Sl i ppa ge ra ti o (%)
growth and a stable NIM of 3.33% (+2bp QoQ). Other income fell 20%/13%
QoQ/YoY, driven by sharp moderation in treasury gains (-61%/-66%
QoQ/YoY).
Loan growth of 5%/22% QoQ/YoY was driven by corporate book growth of
30% YoY. Retail/agri and SME loans also maintained strong traction (up 18%
and 20% YoY, respectively).
Asset quality deteriorated slightly due to a spike in education loan slippages
(INR710m out of total retail slippages of INR1.5b). Total slippages at 1.94%
(1.4% in 2QFY18) led to an 11% QoQ increase in GNPA to INR21.6b.
However, the bank has up-fronted provisions toward education loans, taking
PCR to 46.5% from 45.3% in 2QFY18. GNPA/NNPA declined to 2.51%/1.36%
(+12bp/+4bp QoQ). Recoveries and upgrades increased 35% QoQ to
INR2.2b, while write-offs were negligible at INR10m.
Other highlights:
a) Business growth is picking up outside Kerala, with
38%/40% YoY growth in retail/SME loans. c) CASA ratio stayed stable
sequentially at 32.96%.
Valuation and view:
We believe FB’s asset quality concerns, which are largely
legacy issues, are now mostly 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. We largely maintain estimates for FY18/19, and reiterate
Buy
with a
target price of INR149 (2x Sept 2019 BV) based on the RI model.
1Q
6,927
14.5
2,370
9,297
5,039
4,259
16.0
1,685
2,574
901
1,673
18.3
3.3
12.5
19.3
72.9
17.5
2.9
9.9
1.7
2.3
FY17 FY18E
FY17
FY18E
2Q
3Q
4Q
1Q
2Q
3Q
4Q
7,262
7,914
8,424
8,007
8,989
9,500
9,783 30,526 36,279
19.4
30.7
22.8
15.6
23.8
20.0
16.1
21.7
18.8
2,616
2,747
2,821
3,291
2,872
2,286
3,991 10,818 12,441
9,878 10,661 11,245 11,298 11,861 11,786 13,774 41,345 48,720
5,128
5,912
5,753
5,719
6,029
6,172
7,315 22,095 25,236
4,750
4,749
5,492
5,579
5,832
5,614
6,459 19,249 23,484
41.1
45.9
39.2
31.0
22.8
18.2
17.6
35.2
22.0
1,684
1,588
1,227
2,364
1,768
1,624
2,572
6,184
8,328
3,066
3,161
4,265
3,214
4,064
3,990
3,888 13,065 15,156
1,053
1,104
1,699
1,113
1,427
1,390
1,223
4,757
5,153
2,013
2,057
2,566
2,102
2,637
2,600
2,664
8,308 10,003
24.8
26.4 2,400.9
25.6
31.0
26.4
3.8
74.7
20.4
3.3
17.0
27.2
75.0
18.2
2.8
10.4
1.6
2.1
3.3
23.3
32.0
75.5
19.5
2.8
11.0
1.6
2.1
3.3
23.4
26.2
75.1
17.3
2.3
9.4
1.3
1.7
3.0
18.1
29.1
79.6
18.7
2.4
10.6
1.4
2.9
3.3
12.6
24.7
83.0
19.5
2.4
10.7
1.3
1.8
3.3
9.0
22.0
84.5
21.6
2.5
11.6
1.4
2.4
3.2
19.0
22.0
77.0
21.5
2.4
11.8
1.3
2.3
3.3
23.4
26.2
75.1
17.3
2.3
9.4
1.4
1.9
3.2
19.0
22.0
77.0
21.5
2.4
11.8
1.3
1.9
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540
| Anirvan Sarkar
(Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
| Parth Gutka
(Parth.Gutka@motilaloswal.com)
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 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, %)
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
721
226
31.3
189
37
696
96.5
270
496
160
843
738
235
31.9
193
42
719
97.5
232
509
164
863
748
240
32.1
201
39
731
97.8
246
528
168
885
792
257
32.5
214
43
775
97.9
222
581
173
914
811
266
32.8
227
40
793
97.7
229
591
174
938
863
268
31.0
224
44
815
94.5
242
647
200
1,005
922
320
34.7
266
53
888
96.2
285
696
213
1,115
977
318
32.6
264
54
919
94.1
282
733
218
1,150
958
320
33.4
270
51
927
96.7
267
763
222
1,164
972
320
32.9
28
5
943
97.0
263
806
233
1,218
1,005
331
33.0
28
5
966
96.1
298
850
243
1,282
3
4
3
1
-4
2
-96
13
5
4
5
9
4
-170
-89
-91
9
-17
4
22
14
15
11.4
7.1
3.1
11.1
7.0
3.1
10.9
6.9
3.0
11
7
3
10.6
6.5
3.3
10.6
6.4
3.3
10.5
6.3
3.3
10
6
3
10.0
6.1
3.1
9.5
5.8
3.3
9.5
5.8
3.3
0
0
2
-96
-47
1
13,046 14,987 16,841 16,678 17,473 18,197 19,516 17,271 18,679 19,490 21,612
4,845
2.6
1.0
63
3,170
2.8
6,748
2.9
1.3
55
4,030
3.3
8,761
3.2
1.7
48
3,870
3.2
9,500
3
2
43
5,360
4
9,945
2.9
1.7
43
2,800
2.3
10,397 11,024
2.8
1.6
43
2,660
2.1
2.8
1.6
44
2,740
2.1
9,412
2
1
46
2,440
2
10,613 10,664 11,567
2.4
1.4
43
4,250
2.9
2.4
1.3
45
2,840
1.4
2.5
1.4
46
4,120
1.9
11
8
13
4
119
45
53
11
5
-25
-22
297
50
-14
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
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
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
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
5,753
2,630
3,123
5,492
1,227
770
4,265
1,699
2,566
1Q
8,007
3,291
1,120
340
370
1,461
5,719
2,985
2,735
5,579
2,364
2,364
3,214
1,113
2,102
FY18
2Q
8,989
2,872
750
410
170
1,542
6,029
3,127
2,902
5,832
1,768
1,400
4,064
1,427
2,637
3Q
9,500
2,286
290
390
70
1,536
6,172
3,005
3,168
5,614
1,624
1,200
3,990
1,390
2,600
Variation (%)
QoQ
YoY
6
-20
-61
-5
-59
0
-1
2
-4
9
-4
-8
-14
-2
-3
-1
20
-17
-66
18
-61
12
11
4
-6
17
18
2
15
26
26
26
10,661 11,245 11,298 11,861 11,786
Source: MOSL, Company
15 January 2018
2

Federal Bank
Exhibit 2: 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
9,500
20.0
2,286
11,786
6,172
5,614
18.2
1,624
3,990
1,390
2,600
26.4
2QFY18E
9,362
18.3
3,013
12,375
6,502
5,873
23.7
1,979
3,894
1,293
2,602
26.5
Var (%) Comments
1
-24
-5
-5
-4
-18
2
7
0
Lower treasury gains
Slower than expected growth in employee expenses
Provisions lower than expected
Source: MOSL, Company
72%+ of FB’s wholesale
book is now rated A or
above, compared to 70% in
3QFY17
Strong growth in corporate; Growth in SME/retail book outside Kerala
picking up
Loan growth of 5% QoQ (+22% YoY) was driven by corporate (+17%/+48%
QoQ/YoY). Retail & agri book also continued strong traction with 18% YoY while
SME book grew 20% YoY. SME book outside Kerala (INR9.5b, 52% of total retail
book, up from 46% in 3QFY17) showed healthy growth of 40% YoY.
Corporate loan book now constitutes 44% 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 (72%) of FB’s corporate portfolio is now rated A and above.
Retail slippages of INR1.5b included education loan slippages of INR710m on
account of a waiver announced by the Kerala state Government. This had been
flagged by the management in 2QFY18.
Slippages spiked 20% sequentially even after adjusting for the lumpy education
loan slippage in 3QFY18. Recoveries and upgrades at INR2.2b were 66% higher
sequentially, while write-offs were negligible at INR10m.
Retail and agri slippages (at INR1.5b/INR0.4b) continued to trend upwards while
SME slippages increased to INR1.2b (INR1.07b in 2QFY18) and wholesale
slippages came in at INR980m(vs 280m in 2QFY18). Out of the retail slippages of
INR 1500m, ~46% i.e 710m came from education loans resulting from a waiver
announced by the Kerala state government.
GNPA increased 11% QoQ while NNPA increased 8% QoQ as the bank made
upfront provisioning against education loan slippages, enhancing PCR to 46.5%
from 45.3% in 2QFY18; In percentage terms GNPA/NNPA increased 13bp/4bp
QoQ to 2.52%/1.36%.
OSRL book stood at INR14.2b (~1.7% of loans).
FB registered CASA growth of 4% YoY, driven by 6% growth in SA deposits. CASA
ratio was flat at 32.9% same as 2QFY18.
The proportion of retail deposits stood at 96.1%, one of the best within the
banking system.
3
Asset quality deteriorated driven by education loan slippages flagged earlier
Retail slippages trended up
driven by education loans
Strong CASA growth; Share of retail deposits at 96% of overall
15 January 2018

Federal Bank
3QFY18 conference call highlights
Balance sheet related
Total education loan book is at INR3b, mostly in Kerala.
Total NR deposit base is 40% of total deposits.
CA – 46% in Kerala and 54% outside Kerala.
80% of loan book is linked to MCLR. Base rate has not been reduced in the last
two years.
The bank has taken refinance from NABARD/SIDBI etc. which is exempt from
CRR/SLR.
Aiming to grow fee income 2% higher than loan growth.
Asset quality
Corporate slippage – total three accounts of INR300-350m each, one of them
has a high chance of recovery.
Education loan slippage has shot up, as the state government encouraged
bonafide borrowers to seek subsidy, and borrowers who were paying earlier
have stopped paying now. FB expects incremental slippages in this book to
come down, and 30%+ of the education loan slippages of the quarter to be
upgraded to standard in 4QFY18 as the final decision is awaited on 31
st
Jan,
2018.
Divergence report still awaited from the RBI (audit completed), not expecting
anything drastic.
nd
NCLT 2 list – INR550m total exposure – > 60% PCR
Breakup of provisions: NPA - INR1.2b, std. – INR200m, investments - INR190m.
Recoveries and upgrades of INR2.2b, write-offs – INR10m.
AFS book has duration of 2.2.
Restructured book breakup – infrastructure INR8b, aviation INR2.5b, INR2.3b
between iron & steel, textile. Two aviation accounts of INR3b to come out of
moratorium in 4QFY18.
Expect 30% of education loans to become standard by Jan ’18.
SDR book stands at INR940m.
SR – 95cr provided on total SR.
The bank guided to ~INR4b of slippages in 4QFY18.
P&L related
Should exit FY18 with 50% CI ratio.
GST implementation led to 2% rise in opex.
Others
Fedfina cap raise is in advanced stages – should announce in next 2 months.
Wholesale banking yield – 9%.
Provided INR110m in employee expenses.
15 January 2018
4

Federal Bank
Buy with a target price of
INR149 based on
Residual income model
(2x Dec 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 (22% 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 of ~24% over FY17-20. Stock trades at FY19 PE and PBV of
17.4x/1.6x. 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 INR149 (Residual
income model –2x Dec 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%.
Exhibit 4: One year forward P/E
Max (x)
-1SD
1.8
1.4
1.1
0.8
0.5
1.6
31.0
24.0
17.0
10.0
3.0
15.9
11.1
4.5
6.3
17.3
P/E (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
23.9
Exhibit 3: One year forward P/BV
2.3
1.8
1.3
0.8
0.3
P/B (x)
Min (x)
Avg (x)
+1SD
Source: MOSL, Company
Source: MOSL, Company
15 January 2018
5

Federal Bank
Exhibit 5: We largely maintain estimates
(INR b)
Net Interest Income
Other Income
Total Income
Operating Expenses
Operating Profits
Provisions
PBT
Tax
PAT
Margins (%)
Credit Cost (%)
RoA (%)
RoE (%)
EPS
BV
ABV
Old Estimates
FY18
FY19
FY20
36.5
43.6
51.8
12.4
14.3
16.5
48.9
58.0
68.3
25.3
29.4
34.1
23.6
28.6
34.2
8.3
9.1
10.0
15.4
19.5
24.2
5.2
6.6
8.2
10.2
12.9
16.0
3.20
3.19
3.16
0.88
0.83
0.75
0.8
0.9
0.9
9.6
10.0
11.3
5.5
6.6
8.2
63.4
69.2
76.6
57.2
62.3
69.0
Revised Estimates
FY18
FY19
FY20
36.3
43.2
51.8
12.4
14.3
16.5
48.7
57.5
68.3
25.2
29.3
34.1
23.5
28.2
34.1
8.3
9.1
10.0
15.2
19.1
24.1
5.2
6.5
8.2
10.0
12.6
15.9
3.18
3.16
3.16
0.88
0.83
0.75
0.8
0.8
0.9
9.4
9.8
11.3
5.5
6.5
8.2
63.4
69.0
76.4
56.7
62.1
68.6
FY18
-0.6
0.0
-0.4
-0.2
-0.7
0.9
-1.5
-1.5
-1.5
Change (%)
FY19
-1.0
0.0
-0.8
-0.2
-1.3
0.3
-2.1
-2.1
-2.1
FY20
-0.1
0.0
0.0
0.1
-0.2
0.2
-0.4
-0.4
-0.4
-1.5
-0.1
-0.9
-2.1
-0.3
-0.3
-0.4
-0.3
-0.6
Source: MOSL, Company
Exhibit 6: 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
5.45
2.88
0.84
0.15
0.99
3.87
2.00
1.06
0.95
1.87
0.66
1.20
0.41
0.79
11.9
9.4
FY19E
8.34
5.46
2.88
0.83
0.13
0.95
3.83
1.95
1.02
0.93
1.88
0.61
1.27
0.43
0.84
11.7
9.8
FY20E
8.38
5.49
2.89
0.81
0.11
0.92
3.81
1.91
0.99
0.92
1.90
0.56
1.35
0.46
0.89
12.7
11.3
Source: MOSL, Company
15 January 2018
6

Federal Bank
Story in charts
Exhibit 7: NIMs improved ~2bp QoQ to 3.33%
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
3.3 3.3
11.1 10.9 10.9 10.6 10.6
10.5 10.3 10.0
7.0
6.9
6.8
6.5
6.4
6.3
6.1
9.5
5.8
9.5
5.8
Exhibit 8: Funding cost benefits largely passed on
Yield on Loans (%)
Cost of Deposits (%)
6.1
Source: MOSL, Company
Source: MOSL, Company
Exhibit 9: LD ratio (84.5%) was up by 150bp
C-D Ratio %
Exhibit 10: Deposit growth came in at 9% YoY
Deposits (INR b)
19
15
12
4
14 14
8
17
YoY Gr. (%)
23 23
17
18
12.6
9.0
14 14 12
12
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: CASA growth slowed down to 4% YoY
CASA growth YoY (%)
33
24
23
20 19
19 19 20 19 18
19 15
17
16
14
13 14
4
CASA Ratio (%)
Exhibit 12: Proportion of granular retail deposits remains
high (%)
98 98
97 97 96
96 95 95 95 95 96 97 98
94 96 94
92 94
Source: MOSL, Company
Source: MOSL, Company
15 January 2018
7

Federal Bank
Exhibit 13: Loan growth led by highly rated corporates (%)
Retail
SME and Agri Loans
Corporate Advances
Exhibit 14: Declining emphasis on bulk gold lending (%)
Housing
Gold
Mortgage
Others
34 32 33 33 32 32 31 30 32 39 35 35 37 37 39 39
44
36 37 37 36 37 38 38 39 38 37 36 35 34 34 32
32 28
33 33 32 32 33 31 32 32 32 30 29 31 31 30 29 29 28
20 21 21 22 21 22 23 23 22 29
33 31 30 30 30
12 13 14 15 15 16 17
18 19
18 17 18 18 18 18
26 25 23 21 19 17 15 14 13
11 10 10 9 8 8
42 41 41 42 44 45 45 45 46 42 40 42 42 43 44
Source: MOSL, Company
Source: MOSL, Company
Exhibit 15: Rating mix remains healthy (%)
A and above
41
22
37
45
15
40
61
65
67
31
8
28
7
19
14
16
12
BBB
17
13
< BBB
11
19
12
18
12
18
11
17
Exhibit 16: Slippages increased to INR4.1b in the quarter
5.4
3.2
72
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
4.1
72
70
71
70
70
Source: MOSL, Company
Source: MOSL, Company
Exhibit 17: GNPAs increased by 13bp sequentially; PCR
increases to 46%
GNPA (%)
70 70 70 69 69
65 63
55
NNPA (%)
PCR (%)
Exhibit 18: Credit costs declined in the quarter (%)
Credit Cost
2.0
48
43 43 43 44 46 43 45 46
0.5 0.6 0.5
0.9 1.0
0.2
0.3
1.2
0.9
0.6 0.6
0.4
0.7
0.6
Source: MOSL, Company
Source: MOSL, Company
15 January 2018
8

Federal Bank
Exhibit 19: Valuation metrics
66
Private Banks
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
IDFCB
FB
DCBB
JKBK
SIB
EQUITAS
RBK
PSU Banks
SBIN*
PNB
BOI
BOB
CBK
UNBK
INBK
Life Insurance
HDFCLIFE**
Buy
747
372
4.7
5.4
6.7
149
177
211
3.6
3.4
3.5
20.0 19.1 19.1 78.9 69.3 55.3 2.50 2.10 1.76
Buy
Buy
Neutral
Buy
Neutral
Neutral
Buy
2,605
370
172
376
192
95
180
302
173
163
164
355
139
382
11.5 19.6 34.9
10.5 18.9 24.1
-1.2
4.9
10.3
17.9 22.6 29.7
28.4 67.8 99.7
18.4 29.4 45.0
34.4 38.3 42.3
252
185
231
168
481
312
327
270
202
233
183
543
336
357
301 0.31 0.49 0.80
224 0.30 0.47 0.54
203 0.37 0.52 0.60
637 0.28 0.62 0.82
376 0.28 0.41 0.56
5.3
5.3
6.4
5.0
5.9
8.0
9.0
1.8
9.4
9.1
13.1 18.4 10.2
10.4 16.4
10.9
12.6
9.1
7.6
9.1
7.2
5.2
4.7
5.7
7.2
5.5
3.6
3.1
9.0
0.83 0.74 0.67
0.93 0.86 0.77
0.98 0.90 0.81
0.74 0.65 0.56
0.45 0.41 0.37
1.17 1.07 0.98
Buy
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
Neutral
Buy
Buy
Buy
Buy
2,035
4,781
1,331
1,870
778
1,020
230
198
62
42
59
55
199
329
561
336
64
113
202
80
33
164
530
13.6 17.0 21.8 129.6 139.7 158.9 1.07 1.20 1.35
450
299
272
129
454
48
69
94
114
30
73
175
18.4 30.8 40.2
17.8 23.3 29.5
2.8
5.5
8.5
8.4
1.9
1.7
3.2
6.6
3.4
8.2
268
232
110
45
63
84
103
27
68
156
335 0.71 1.07 1.21
8.8
7.3
10.5 12.4 17.7 13.3 10.4 1.86 1.62 1.42
10.8 12.7 30.5 18.2 13.9 2.09 1.87 1.68
1,895 68.7 84.7 105.4 381
1,039 32.1 41.6 51.9
537 1.86 1.92 1.98 18.8 20.4 21.4 27.6 22.4 18.0 4.97 4.21 3.53
323 1.77 1.95 2.03 14.8 16.5 17.4 32.4 25.0 20.0 4.48 3.81 3.22
154 1.70 1.82 1.87 17.3 19.5 20.8 18.9 14.4 11.4 3.06 2.60 2.18
541 1.83 1.89 1.93 17.0 19.1 20.7 27.5 21.3 16.6 4.35 3.70 3.11
50
77
0.74 0.71 0.64
0.81 0.86 0.89
6.3
9.6
8.4
6.9
2.6
6.9
6.8
23.1 19.9 19.2 1.42 1.34 1.28
10.0 11.3 20.4 17.0 13.7 1.79 1.64 1.48
12.3 14.2
8.2
9.5
6.0
8.6
4.6
6.6
0.77 0.70 0.62
1.20 1.08 0.95
Rating
FY20E
Mkt.
Cap
CMP
EPS (INR)
BV (INR)
RoA (%)
RoE (%)
P/E (x)
P/BV (x)
(INRb) (INR) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
1,682 61.1 78.9 101.4 387
10.5 12.8
13.4 17.2
3.8
5.7
4.9
9.9
106 0.98 1.00 1.01 11.5 11.8 12.8 23.8 19.3 15.9 2.42 2.16 1.91
129 0.50 0.68 0.75
34
82
0.44 0.76 0.87
0.59 1.57 1.99
12.7 14.8 16.9
12.8 94.9 28.6 16.6 2.43 2.26 2.01
16.0 22.6 30.2
200 1.22 1.32 1.31 12.4 13.7 16.1 33.0 23.5 17.5 3.40 3.03 2.65
240 -0.02 0.08 0.15 -0.4
3.6 -137.7 33.1 15.9 0.70 0.70 0.68
11.3 14.7 12.5
389 0.73 0.72 0.69 10.9 11.2 11.3 11.1 10.0
Source: MOSL, Company
15 January 2018
9

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
1,04,940
68,661
36,279
18.8
12,441
48,720
17.8
25,236
23,484
22.0
8,328
15,156
5,153
34.0
10,003
20.4
1,543
21,583
33.5
2019E
1,25,160
81,960
43,200
19.1
14,307
57,507
18.0
29,297
28,210
20.1
9,094
19,116
6,499
34.0
12,616
26.1
1,634
26,309
21.9
(INR m)
2020E
1,50,159
98,354
51,805
19.9
16,453
68,258
18.7
34,137
34,121
21.0
10,017
24,104
8,195
34.0
15,909
26.1
1,634
32,220
22.5
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
2017
2018E
3,438
3,448
3,877
77,474
84,108 1,19,006
80,912
87,556 1,22,883
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 13,67,826
54,198
74,522
81,353
2,22,175 2,81,961 3,25,953
8.0
26.9
15.6
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 13,67,826
2019E
3,877
1,29,989
1,33,866
14,06,273
21.0
4,67,289
21.0
58,015
33,787
16,31,942
90,786
3,77,317
15.8
10,91,537
22.0
5,716
66,585
16,31,942
2020E
3,877
1,44,264
1,48,141
17,01,590
21.0
5,70,524
22.1
64,731
37,166
19,51,629
1,09,512
4,31,008
14.2
13,31,675
22.0
6,190
73,244
19,51,629
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
21,511
11,783
2.4
1.3
1.9
0.9
45.2
22,508
11,639
2.1
1.1
1.4
0.8
48.3
24,754
12,950
1.9
1.0
1.3
0.8
47.7
15 January 2018
10

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
2017
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
2019E
9.1
9.9
6.9
6.1
6.1
3.0
3.2
2020E
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
9.4
0.8
65.4
21.6
25.5
9.8
0.8
65.5
21.6
24.9
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
53.9
52.8
52.7
52.3
51.4
51.8
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
28.0
76.5
14.3
13.7
77.6
33.2
26.8
76.5
13.0
12.4
78.3
33.5
25.3
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
2.2
47.2
2.4
4.8
74.1
23.5
1.1
1.0
63.4
24.8
1.8
56.7
2.0
5.5
13.3
20.7
0.8
0.7
69.0
8.9
1.6
62.1
1.8
6.5
19.1
17.4
0.8
0.7
76.4
10.7
1.5
68.6
1.7
8.2
26.1
13.8
0.8
0.7
15 January 2018
11

Federal Bank
Corporate profile
Company description
Exhibit 1: Sensex rebased
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.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Dec-17
Promoter
DII
FII
Others
0.0
34.2
37.4
28.3
Sep-17
0.0
34.3
37.8
27.9
Dec-16
0.0
31.4
28.0
40.7
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Yusuffali Musaliam Veettil Abdul Kader
HDFC Trustee Company Limited Along with
various schemes
Amansa Holdings Private Limited
Reliane Capital Trusteees Co Ltd Along with
various schemes
DSP Black Rock Along with various schemes
% Holding
3.8
3.8
3.5
3.2
3.0
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
K M Chandrasekhar
Shyam Srinivasan
Ashutosh Khajuria
Ganesh Sankaran
Girish Kumar Ganapathy
Designation
Chairman
Managing Director &
CEO
Executive Director
Executive Director
Company Secretary
Exhibit 5: Directors
Name
Balagopal Chandrasekhar
Grace Elizabeth Koshie
Nilesh S Vakamsey
Name
Dilip Gena Sadarangani
Harish H Engineer
Shubhalakshmi Panse
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
BSR & Co LLP
M M Nissim & Co
SVJS & Associates
Type
Statutory
Statutory
Secretarial Audit
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
5.5
6.5
8.2
Consensus
forecast
5.8
7.4
9.2
Variation (%)
-5.4
-12.4
-11.3
Source: Bloomberg
Source: Capitaline
15 January 2018
12

Federal Bank
NOTES
15 January 2018
13

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
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Federal Bank
Disclosure of Interest Statement
Analyst ownership of the stock
Federal Bank
No
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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
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Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
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Equity products
15 January 2018
14