25 October 2016
2QFY17 Results Update | Sector: Financials
Federal Bank
Buy
BSE SENSEX
27,309
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
8,435
FB IN
1,719.0
139.2/2.1
82/41
13/61/40
414
100.0
CMP: INR77
TP: INR105 (+36%)
Strong balance sheet and core PPoP growth; Stable asset quality
Federal Bank’s (FB) 3QFY17 PAT grew 26% YoY to INR2.05b (10% beat), led by
strong core PPoP growth (+42% YoY) and lower credit costs (64bp annualized).
NII grew 31% YoY and 9% QoQ to INR7.9b, driven by strong loan growth and
stable sequential NIM (+28bp YoY to 3.3%). Adjusted for one-off income of
INR190m, NII grew 28% YoY.
Other income increased 44% YoY (5% miss), led by strong growth in fee income
(+33% YoY). Trading gains were lower than expected at INR860m (27% of PBT)
Strong loan growth of 32% YoY was driven by corporate (+71% YoY;
predominantly consisting of working capital loans) and retail (ex-gold loans,
+35% YoY). Deposit growth of 23% YoY (+7% QoQ) was led by strong
mobilization in SA deposits (+32% YoY). CASA ratio improved 360bp QoQ to
34.7% (CASA grew 33% YoY)
Incremental slippages increased marginally to INR2.73b from INR2.66b in 2Q
(annualized slippage ratio of ~2.1%), led by higher slippages in corporate and
retail. The bank made use of the RBI’s 90dpd dispensation on portfolio of
~INR350-400m. Absolute GNPA increased 7% QoQ, but remained stable in
percentage terms (2.77%). There was no sale to ARC during the quarter.
Valuation and view:
We are enthused by FB’s core operating performance, driven by
its strong balance sheet. Although the bank’s corporate asset quality issues may
not be completely behind, we believe it is ahead of corporate lending peer banks
on the asset quality curve. 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 FY17/18 estimates, and retain
Buy
with a target price of
INR105 (1.8x December FY18 BV) based on RI model.
FY16
2Q
6,083
0.4
1,823
7,906
4,540
3,366
-17.9
873
2,493
880
1,613
-32.9
3.1
14.3
5.0
15.0
2.9
3Q
6,057
3.2
1,828
7,885
4,630
3,255
-18.1
751
2,504
877
1,627
-38.5
3.1
14.1
9.8
16.8
3.2
4Q
6,859
10.1
2,269
9,128
5,183
3,945
-15.9
3,886
59
-44
103
-96.3
3.4
11.8
13.3
16.7
2.8
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
17.5
2.9
FY17
2Q
3Q
7,262
7,914
19.4
30.7
2,616
2,633
9,878
10,547
5,128
5,798
4,750
4,749
41.1
45.9
1,684
1,588
3,066
3,161
1,053
1,104
2,013
2,057
24.8
26.4
3.3
17.0
27.2
18.2
2.8
3.3
23.3
32.0
19.5
2.8
4QE
8,043
17.3
2,854
10,897
6,064
4,833
22.5
1,506
3,327
1,163
2,165
2,010.0
3.2
22.0
25.0
20.9
2.9
FY16
25,042
5.2
7,864
32,906
18,668
14,238
-12.5
7,041
7,197
2,440
4,757
-52.7
3.2
11.8
13.3
16.7
2.8
FY17E
30,145
20.4
10,473
40,619
22,029
18,590
30.6
6,463
12,128
4,220
7,907
66.2
3.3
22.0
25.0
20.9
2.9
Financials & Valuations (INR b)
Y/E Mar
2016 2017E 2018E
NII
25.0
30.1
35.2
OP
14.2
18.6
21.7
NP
4.8
7.9
9.4
NIM (%)
3.2
3.3
3.1
EPS (INR)
2.8
4.6
5.5
EPS Gr. (%)
-52.9 66.1
19.1
BV/Sh. (INR)
47
51
55
ABV/Sh. (INR)
43
47
51
ROE (%)
6.0
9.4
10.4
ROA (%)
0.5
0.8
0.8
Payout (%)
29.3
23.2
23.2
Valuations
P/E(X)
27.8
16.8
14.1
P/BV (X)
1.6
1.5
1.4
Quarterly Performance
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)
Operating Parameters
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
Asset Quality
Gross NPA (INR b)
Gross NPA (%)
E: MOSL Estimates
1Q
6,048
7.2
1,939
7,987
4,315
3,672
4.5
1,531
2,141
727
1,414
-35.8
3.2
16.7
10.1
13.0
2.6
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.
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com);+91 22 3982 5521

Federal Bank
Exhibit 1: Quarterly Performance
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)
3QFY17A
7,914
30.8
2,633
10,547
5,798
4,749
45.9
1,588
3,161
1,104
2,057
26.4
3QFY17E Var (%)
7,377
21.9
2,777
10,155
5,556
4,598
41.3
1,750
2,848
977
1,871
15.0
7
-5
4
4
3
-9
11
13
10
NII beat and lower provisioning led to beat on PAT
Source: Company, MOSL
Comments
NII beat led by strong loan growth and stable NIMs
Lower trading gains
Healthy Core operating performance
Lower than expected credit costs
Risk-adjusted NIMs trending higher
Both cost of deposits/yields on advances eased ~15bp QoQ resulting in stable
NIMs at 3.32% (+1bp). Impressive margin performance was despite strong
growth in corporate advances and falling interest rate regime.
Risk-adjusted NIMs clocked in at 2.88%, 34p higher on a YoY basis (+1bp QoQ) as
FB benefited from continuous calibration of its loan mix towards better-rated
large corporates.
Asset quality stable
Slippages increased marginally to INR2.73b led by higher retail slippages
(INR860m v/s INR630m in 2QFY17 and INR680m in 3QFY16).
Corporate delinquencies inched higher to INR550m v/s INR420m in 2QFY17 and
INR1.92b in 3QFY16, but remained under check. SME and agri slippages declined
17% QoQ to INR1.33b.
Consequently, GNPL and NNPL increased 7% and 6% QoQ respectively; largely
stable in percentage terms 2.77% (2.78% in 2QFY17) and 1.58% (1.61% in
1QFY17). Calculated PCR improved 65bp to 43.5%
OSRL book decreased by 3% QoQ to INR14.5b (~2.1% of loans). There was no
sale to ARC during the quarter.
52% of FB’s wholesale book
is now rated AA or above,
compared to 30% during
3QFY16
Strong loan growth driven by corporates and retail (ex gold loans)
Strong growth of 72% YoY (+13% QoQ) in large corporate loans drove overall
loan growth of 32% YoY. CD ratio improved to 75.5% as compared to 75% in
2QFY17 and 70.5% in 3QFY16
Although corporate loan book now constitutes 40% 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.
Over half (52%) of FB’s corporate portfolio is now rated AA or above, compared
to 30% a year ago period.
25 October 2016
2

Federal Bank
Retail deposits (including
low-cost CASA deposits) are
at 96% of the overall
deposit base, reflecting
consistently high granularity
Liabilities franchise remains healthy
FB’s deposit mix continued remained healthy with strong CASA mobilization
(+33% YoY) leading to CASA ratio improving 360bp sequentially to 34.7%
The proportion of core deposits (low-cost CASA deposits plus deposits less than
INR10m) has stood at 96.2% (+170bp), one of the best within the banking
system.
3QFY17 conference call highlights
Asset Quality related
90dpd RBI dispensation used on an amount ~INR350-400m (250m retail, SME
INR50-60m). Management expect 50% of this to be resolved in January itself
Recoveries during the quarter amounted to INR1.11b and write offs stood at
INR460m; INR160m added to GNPA on account of conversion of non-funded
exposure
Break up of provisions: Loan loss provisions - INR1.04b, standard asset provision
– INR280m, investment - INR80m, tax - INR1.1b, others – 190m
Profit and loss related
Pension obligations increased owing to fall in yields, with impact of ~INR170m in
opex.
Demonetization related expenses amounted to another INR550m (includes opex
of INR130m and management estimates of CRR impact+ opportunity costs)
One off (due to excess liquidity) income of INR190m included in NII
Balance Sheet related
Looking at both organic growth as well as portfolio acquisition
FB has improved and scaled up client origination processes, and has good
relations with mid corporates and local corporates. With the beefing up of
senior mgt. team, the opportunity pool is that much bigger and growth
turnaround is much more possible
Targeted buckets of 1/3rd share all 3 retail, wholesale and SME
The bank identifies INR250m+ exposure as “corporate exposure”
Organic retail growth during the quarter was at 16% YoY (excluding acquired
portfolios). Retail continues to be branch led and should scale up. The bank has
made progress on several retail initiatives such as increasing the range of
offerings, scaled up on SBI credit cards etc.
Incremental yields in corporates at ~10.5%, housing yields of 9.5%, SME yield of
10.6-10.8%.
10% of the book is credit substitutes
Average ticket size of INR2m in housing
Deposit mix between Kerala and Non Kerala at 66:33, whereas in case of loans it
is 33:66 between Kerala and Non Kerala (almost the reverse)
~25% of sourcing outside Kerala is done through Fedbank Financial Services
Limited.
25 October 2016
3

Federal Bank
Buy with a target price of
INR105 based on
Residual income model
(1.8x December FY18 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 2.5% 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 (32% YoY in 3QFY17)
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 (25% CAGR over FY16-FY19).
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 18%
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 60bp of
average assets over FY16-FY19E, we believe that greater traction on high-quality
transaction fee income will be an upside risk to our forecasts.
We expect PAT CAGR (with an upside bias) of ~36% over FY16/19. Stock trades
at FY18 PE and PBV of 14x/1.4x. On the back of a healthy capitalization ratio
(CET1 of 11.3%) and improving ROE profile, we
maintain Buy
with a target price
of INR105 (Residual income model – 1.8x December 18E BV). Key assumptions
are a) risk free rate of 7% b) Beta of 1.2x c) Risk Premium of 5% d) average
growth of ~17% over FY16-36E and e) Terminal growth rate of 5%
Old Estimates
FY17
FY18
FY19
29.3
33.4
41.6
10.7
12.3
14.1
40.0
45.7
55.7
21.3
24.7
28.8
18.7
21.0
27.0
6.9
6.6
8.4
11.9
14.3
18.6
4.1
4.9
6.4
7.8
9.4
12.2
697
878
1,107
942
1,149 1,402
3.28
3.09
3.14
1.00
0.75
0.75
0.8
0.8
0.8
9.3
10.4
12.3
Revised Estimates
FY17
FY18
FY19
30.1
35.2
42.0
10.5
12.3
14.5
40.6
47.5
56.5
22.0
25.7
30.1
18.6
21.7
26.4
6.5
7.3
8.1
12.1
14.4
18.3
4.2
5.0
6.4
7.9
9.4
12.0
726
908
1,135
966
1,207 1,509
3.30
3.13
3.01
0.90
0.80
0.70
0.8
0.8
0.8
9.4
10.4
12.1
Change (%)
FY18
5.2
0.1
3.8
4.1
3.5
9.5
0.7
1.6
0.3
3.3
5.0
Exhibit 2: We largely maintain estimates over FY 17-19
(INR b)
Net Interest Income
Other Income
Total Income
Operating Expenses
Operating Profits
Provisions
PBT
Tax
PAT
Loans
Deposits
Margins (%)
Credit Cost (%)
RoA (%)
RoE (%)
FY17
3.0
-2.5
1.5
3.6
-0.8
-5.7
2.0
2.9
1.6
4.2
2.5
FY18
0.8
3.0
1.4
4.6
-2.1
-3.6
-1.4
-0.6
-1.9
2.5
7.6
Source: MOSL, Company
25 October 2016
4

Federal Bank
Exhibit 3: One year forward P/BV
PB (x)
1.5
1.1
0.7
0.5
0.3
1.2
1.1
Peak(x)
Avg(x)
1.6
Min(x)
Exhibit 4: One year forward P/E
35
27
19
11
3
4.5
10.3
12.8
PE (x)
Peak(x)
Avg(x)
23.9
Min(x)
Source: MOSL, Company
Source: MOSL, Company
25 October 2016
5

Federal Bank
Exhibit 5: DuPont Analysis: Core Operating performance driving higher return ratios
Y/E March
Interest Income
Interest Expended
Net Interest Income
Core Fee Income
Fee to core Income
Core Income
Operating Expenses
Cost to Core Income
Employee cost
Employee to total exp (%)
Others
Core operating Profits
Non Interest income
Trading and others
Operating Profits
Provisions
NPA
Others
PBT
Tax
Tax Rate
RoA
Leverage (x)
RoE
FY09
9.29
5.61
3.69
0.84
16.38
4.53
1.60
35.4
0.89
55.6
0.71
2.93
1.45
0.60
3.53
1.31
0.97
0.34
2.22
0.82
36.9
1.4
8.6
12.1
FY10
8.90
5.48
3.42
0.72
15.22
4.14
1.64
39.7
0.89
54.1
0.75
2.49
1.29
0.57
3.07
0.98
1.00
-0.02
2.08
0.96
46.0
1.1
9.2
10.3
FY11
8.52
4.85
3.67
0.68
14.36
4.36
1.76
40.4
1.01
57.5
0.75
2.60
1.09
0.40
3.00
1.10
1.03
0.08
1.90
0.66
34.9
1.2
9.7
12.0
FY12
9.92
6.43
3.49
0.65
14.66
4.14
1.75
42.2
0.97
55.5
0.78
2.39
0.95
0.30
2.69
0.60
0.40
0.21
2.09
0.70
33.6
1.4
10.4
14.4
FY13
9.37
6.37
3.00
0.62
15.56
3.62
1.79
49.5
0.95
53.1
0.84
1.83
1.01
0.39
2.22
0.40
0.29
0.12
1.81
0.54
29.8
1.3
10.9
13.9
FY14
9.54
6.48
3.06
0.68
16.97
3.74
1.98
52.9
1.06
53.5
0.92
1.76
0.95
0.27
2.03
0.37
0.31
0.06
1.66
0.51
30.8
1.2
10.9
12.6
FY15
9.42
6.40
3.02
0.66
15.83
3.68
2.07
56.3
1.13
54.7
0.94
1.61
1.12
0.46
2.07
0.14
0.26
-0.12
1.93
0.65
33.9
1.3
10.7
13.7
FY16
8.89
6.01
2.87
0.65
17.32
3.53
2.14
60.7
1.21
56.4
0.93
1.39
0.90
0.25
1.63
0.81
0.64
0.17
0.83
0.28
33.9
0.5
11.0
6.0
FY17E
8.55
5.58
2.97
0.62
15.49
3.59
2.17
60.5
1.22
56.4
0.95
1.42
1.03
0.41
1.83
0.64
0.58
0.06
1.19
0.42
34.8
0.78
12.1
9.4
FY18E
8.18
5.36
2.82
0.58
15.21
3.40
2.07
60.7
1.16
56.0
0.91
1.34
0.99
0.41
1.74
0.58
0.52
0.06
1.16
0.40
34.8
0.76
13.8
10.4
FY19E
8.05
5.32
2.73
0.55
14.90
3.28
1.96
59.7
1.09
55.6
0.87
1.32
0.94
0.40
1.72
0.52
0.47
0.06
1.19
0.42
34.8
0.78
15.6
12.1
Source: MOSL, Company
Exhibit 6: DuPont Analysis: steady improvement in core profitability
Net interest income
Fee income
Core Income
Operating cost
- Employee Expenses
- Other Expenses
Core operating profit
Fx and other non core Income
Operating Profit
Provisions
Tax
ROAA
Leverage (x)
ROAE
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
3.00
3.14
2.97
3.07
2.89
2.85
2.77
3.05
2.99
2.99
2.99
0.45
0.57
0.47
0.53
0.41
0.48
0.46
0.56
0.49
0.52
0.48
3.45
3.71
3.44
3.60
3.31
3.34
3.23
3.61
3.48
3.51
3.46
1.96
2.03
2.07
2.27
2.07
2.13
2.12
2.30
2.18
2.11
2.19
1.09
1.06
1.19
1.22
1.21
1.17
1.18
1.30
1.25
1.20
1.21
0.88
0.98
0.88
1.04
0.86
0.96
0.94
1.00
0.93
0.91
0.98
1.49
1.68
1.36
1.33
1.24
1.21
1.11
1.30
1.31
1.40
1.28
0.38
0.44
0.65
0.98
0.52
0.37
0.38
0.45
0.53
0.56
0.52
1.87
2.12
2.01
2.31
1.76
1.58
1.49
1.75
1.84
1.96
1.79
0.12
0.24
0.00
0.20
0.73
0.41
0.34
1.73
0.73
0.69
0.60
0.58
0.64
0.68
0.73
0.35
0.41
0.40
-0.02
0.39
0.43
0.42
1.17
1.25
1.34
1.38
0.68
0.76
0.74
0.05
0.72
0.83
0.78
10.7
10.6
10.5
10.5
10.7
10.7
10.7
11.0
11.3
11.6
12.4
12.5
13.2
14.0
14.6
7.2
8.1
8.0
0.5
8.2
9.6
9.6
Source: MOSL, Company
25 October 2016
6

Federal Bank
Story in charts
Exhibit 7: NIMs stable QoQ at 3.32%
3.6
3.5
3.3
3.1
3.1
3.2
3.3
3.4
3.2
3.3
3.1 3.1
3.0
3.3 3.3
3.3 3.3
NIMs (%)
11.4
Exhibit 8: Funding cost benefits largely passed on
Yield on Loans (%)
11.4
11.1
10.9
10.9
Cost of Deposits (%)
10.6
10.6
10.5
7.3
7.1
7.0
6.9
6.8
6.5
6.4
6.3
Source: MOSL, Company
Source: MOSL, Company
Exhibit 9: Comfortable loan-to-deposit ratio (%)
Exhibit 10: Deposit growth picked up in 3QFY17 (23% YoY)
Deposits (INR b)
YoY Gr. (%)
C-D Ratio %
18
10
13
15
23
19 17
12
4
8
14 14
14 14
12 12
17
Source: Company, MOSL
Source: Company, MOSL
Exhibit 11: CASA ratio improves due to demonetization
related influx (%)
CASA Ratio (%)
23
12
15 15
16
CASA growth YoY (%)
33
19
20 19 18
17 19 19
Exhibit 12: Proportion of granular retail deposits remain
high at ~96%
15 13 14
14
88
85
88
92
94
96 95
95 95 95
96
97 98 98 98
94
96
Source: MOSL, Company
Source: MOSL, Company
25 October 2016
7

Federal Bank
Exhibit 13: 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
42 43 39 38 34 32 33 33 32 32 31 30 32 39 35 35 37
26 27 27 26 26 25 23
19 18 21 22 24 25 25 24 25 25
31 30 32 32 33 33 32 32 33 31 32 32 32 30 29 31 31
22 23 21 20 21 21 22 21 22 23 23 22 29
33
9 10 12 12 13 14 15 15 16 17 18 19
18 17
29 27 25 26 25 23 21 19 17 15 14 13
11 10
40 40 42 42 41 41 42 44 45 45 45 46 42 40
Source: MOSL, Company
Source: MOSL, Company
Exhibit 15: Rating mix remains healthy (%)
AAA / AA
54
12
8
26
45
17
10
28
43
15
14
28
41
22
13
24
45
15
14
26
A
BBB
31
8
31
30
28
7
25
40
< BBB
19
14
16
51
16
12
21
51
17
13
18
52
Exhibit 16: Slippages trending lower (INR b)
5.4
4.2
3.6
3.0
1.5 1.5
1.9 1.8 1.8
3.2
2.3
1.8
4.0 3.9
2.8 2.7 2.7
Source: MOSL, Company
Source: MOSL, Company
Exhibit 17: Asset Quality headwinds behind; GNPA% stable
at 2.8%
GNPA (%)
NNPA (%)
77 72 75
72 70 70 70 69 69
65 63
PCR (%)
55
Exhibit 18: Credit costs trending down (%)
Credit Cost
2.0
0.9
0.3
48
43 43 43 44
0.1 0.2
-0.4
0.5 0.6 0.5
1.0
0.2 0.9
0.6 0.6
Source: MOSL, Company
Source: MOSL, Company
25 October 2016
8

Federal Bank
Exhibit 19: Quarterly Snapshot (INR b)
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
Others
PBT
Taxes
PAT
Asset Quality
GNPA
NNPA
GNPA (%)
NNPA (%)
PCR (Calculated, %)
Slippages
Slippage Ratio (%)
Credit Cost (%)
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
SME Loans
Total Assets
1Q
5,642
1,565
400
260
57
848
7,208
3,692
2,044
1,648
3,515
221
542
-1
3,295
1,092
2,202
FY15
2Q
6,058
1,959
420
350
81
1,108
8,017
3,919
2,038
1,881
4,098
457
660
-278
3,641
1,238
2,403
3Q
5,872
2,199
770
300
210
919
8,071
4,097
2,351
1,747
3,974
-8
560
22
3,982
1,335
2,647
4Q
6,232
3,060
950
260
780
1,070
9,292
4,601
2,487
2,114
4,692
398
270
154
4,294
1,488
2,805
1Q
6,048
1,939
380
410
290
859
7,987
4,315
2,523
1,792
3,672
1,531
1,170
-129
2,141
727
1,414
FY16
2Q
6,083
1,823
260
340
190
1,033
7,906
4,540
2,489
2,051
3,366
873
1,270
-137
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
201
2,504
877
1,627
4Q
6,859
2,269
410
360
240
1,259
9,128
5,183
2,930
2,252
3,945
3,886
2,720
756
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
417
2,574
901
1,673
FY17
2Q
3Q
Variation (%)
QoQ
YoY
9
1
0
22
-22
1
7
13
10
18
0
-6
6
-33
3
5
2
7
6
-1
-3
65
3
-1
-1
-14
-14
1
7
19
362
19
22
9
173
18
8
7
1
11
31
44
274
74
-56
27
34
25
24
27
46
111
167
133
26
26
26
16
26
-38
-8
-447
-29
-115
32
-35
-64
28
23
33
257
32
38
21
-157
16
32
27
16
26
7,262 7,914
2,616 2,633
860
860
270
330
230
180
1,256 1,263
9,878 10,547
5,128 5,798
2,916 3,197
2,212 2,601
4,750 4,749
1,684 1,588
980 1,040
704
468
3,066 3,161
1,053 1,104
2,013 2,057
10,164 10,311 10,666 10,577 13,046 14,987 16,841 16,678 17,473 18,197 19,516
3,039 3,185 3,329 3,733 4,845 6,748 8,761 9,500 9,945 10,397 11,024
2.2
2.1
2.2
2.0
2.6
2.9
3.2
2.8
2.9
2.8
3
0.7
0.7
0.7
0.7
1.0
1.3
1.7
1.6
1.7
1.6
2
70
69
69
65
63
55
48
43
43
43
44
1,830 1,760 2,340 1,800 3,170 4,030 3,870 5,360 2,800 2,660 2,740
1.8
1.7
2.2
1.7
2.8
3.3
3.2
4.2
2.3
2.1
2
0.5
0.6
0.5
0.2
0.9
1.0
0.3
2.0
0.9
0.6
1
0.0
0.0
3.3
618
190
30.8
158
32
587
95.0
236
450
145
112
760
0.0
0.0
3.4
646
197
30.6
164
33
613
94.9
194
485
154
118
784
0.0
0.0
3.2
656
200
30.5
168
32
626
95.5
207
480
157
120
796
11.4
7.3
3.3
708
216
30.4
177
38
675
95.3
206
513
161
129
829
11.4
7.1
3.1
721
226
31.3
189
37
696
96.5
270
496
160
130
843
11.1
7.0
3.1
738
235
31.9
193
42
719
97.5
232
509
164
139
863
10.9
6.9
3.0
748
240
32.1
201
39
731
97.8
246
528
168
140
885
10.9
6.8
3.3
792
257
32.5
214
43
775
97.9
222
581
173
150
914
10.6
6.5
3.3
811
266
32.8
227
40
793
97.7
229
591
174
153
938
10.6
6.4
3.3
863
268
31.0
224
44
815
94.5
242
647
200
162
1,005
11
6
3
922
320
35
266
53
888
96
285
696
213
163
1,115
Source: MOSL, Company
25 October 2016
9

Federal Bank
Exhibit 20: Valuation metrics
66
Rating
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
IDFC Bk
FB
DCBB
JKBK
SIB
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
CBK
UNBK
OBC
INBK
ANDB
Public Aggregate
Banks Aggregate
HDFC*
LICHF
IHFL
GRHF
REPCO
DEWH
Housing Finance
RECL
POWF
Infra Finance
SHTF
MMFS
BAF
MUTH
SKSM
Asset Finance
NBFC Aggregate
Financials
Buy
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Neutral
Neutral
Buy
Buy
Buy
Neutral
Buy
Neutral
Buy
Neutral
Buy
Buy
CMP
Mcap
EPS (INR)
P/E (x)
BV (INR)
P/BV (x)
RoA (%)
RoE (%)
(INR) (USDb)
270
23.8
1,235
47.3
484
17.5
729
20.3
1,347
8.6
1,220
11.0
65
3.3
77
2.0
119
0.5
62
0.5
21
0.4
135.1
258
30.4
132
4.3
116
1.9
160
5.6
287
2.4
140
1.5
117
0.6
249
1.8
50
1.6
49.9
185.0
1,241
29.7
526
4.0
753
4.8
341
1.9
637
0.6
280
1.3
42.3
139
4.2
133
5.3
9.5
943
3.2
293
2.5
926
1.5
305
1.8
679
1.4
10.5
62.3
247.3
FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
17.2 18.0 12.4 10.5 145 158 1.38 1.19 1.12 1.03 10.4 10.0
57.9 69.8 21.3 17.7 332 385 3.72 3.20 1.90 1.91 18.7 19.5
13.0 23.2 37.3 20.8 230 249 2.11 1.94 0.54 0.83
5.8
9.7
26.6 32.4 27.4 22.5 207 239 3.51 3.05 1.62 1.75 14.2 15.4
74.5 95.8 18.1 14.1 387 463 3.48 2.91 1.70 1.79 20.9 22.6
48.4 58.7 25.2 20.8 333 383 3.67 3.18 1.85 1.85 15.5 16.4
3.1
4.2 20.7 15.4
43
46 1.52 1.41 1.14 1.13
7.5
9.5
4.5
5.5 17.0 14.1
51
55 1.53 1.41 0.77 0.78
9.3 10.4
7.1
8.6 16.8 13.8
69
77 1.73 1.54 0.94 0.92 10.9 11.8
-22.8 14.5 -2.7
4.3 109 124 0.57 0.50 -1.33 0.77 -18.9 12.4
2.8
3.1
7.6
6.9
30
32 0.72 0.66 0.55 0.54
9.7 10.0
23.3 18.4
2.67 2.39
9.8 23.3 26.3 11.1 230 249 1.12 1.02 0.44 0.52
7.5
9.2
8.5 13.2 15.6 10.0 183 195 0.72 0.68 0.26 0.37
4.8
7.0
-4.0 18.5 -29.0
6.3 239 254 0.48 0.46 -0.07 0.29 -1.7
7.5
12.3 18.8 13.0
8.5 156 170 1.03 0.94 0.41 0.58
8.1 11.5
27.2 37.9 10.5
7.6 499 528 0.58 0.54 0.26 0.32
5.6
7.4
15.6 30.4
9.0
4.6 308 334 0.46 0.42 0.25 0.45
5.2
9.5
19.3 21.3
6.1
5.5 412 428 0.28 0.27 0.27 0.28
4.8
5.1
30.4 31.9
8.2
7.8 304 328 0.82 0.76 0.69 0.66 10.4 10.1
1.5
6.4 32.5
7.7 109 114 0.46 0.44 0.08 0.31
1.4
5.8
16.6 10.7
0.78 0.74
21.0 15.4
1.62 1.50
34.3 36.9 24.0 18.9 193 216 3.61 2.92 1.84 1.83 19.5 18.9
37.6 44.7 14.0 11.8 211 247 2.49 2.13 1.47 1.52 19.1 19.5
69.5 87.7 10.8
8.6 281 317 2.68 2.38 3.69 3.76 26.0 29.3
7.9
9.8 43.4 34.7
28
34 12.32 10.15 2.29 2.41 31.0 32.1
25.7 37.7 24.8 16.9 175 209 3.63 3.05 1.85 2.19 15.7 19.6
30.7 35.6
9.1
7.9 202 228 1.39 1.23 1.24 1.21 16.6 16.6
20.4 17.3
4.02 3.57
29.4 35.3
4.7
3.9 168 195 0.83 0.71 2.63 2.68 18.8 19.5
24.0 25.5
5.5
5.2 149 167 0.89 0.79 2.37 2.12 16.8 16.2
5.2
4.6
0.87 0.76
63.5 82.3 14.8 11.5 500 565 1.89 1.67 2.22 2.52 13.4 15.4
12.7 14.6 23.1 20.1 117 127 2.50 2.30 1.79 1.87 11.3 11.9
31.8 41.3 29.1 22.4 164 199 5.65 4.65 3.27 3.29 21.1 22.8
27.5 32.0 11.1
9.5 158 179 1.92 1.71 3.59 3.45 18.4 19.0
42.7 38.5 15.9 17.6 198 237 3.42 2.87 6.35 3.78 28.6 17.7
12.5 10.4
1.91 1.71
13.1 11.3
2.31 2.04
18.2 14.1
1.75 1.61
Source: MOSL, Company
Buy
Buy
Buy
Neutral
Buy
Buy
Neutral
Neutral
Buy
Buy
Buy
Buy
Buy
25 October 2016
10

Federal Bank
Financials and Valuations
Income Statement
Y/E March
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)
2011
17,466
23.8
5,168
22,634
16.6
8,361
14,273
12.8
5,254
9,018
3,147
34.9
5,871
26.4
527
13,815
19.4
2012
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
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
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
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
25,042
5.2
7,864
32,906
1.0
18,668
14,238
-12.5
7,041
7,197
2,440
33.9
4,757
-52.7
1,449
12,963
-5.5
2017E
30,145
20.4
10,473
40,619
23.4
22,029
18,590
30.6
6,463
12,128
4,220
34.8
7,907
66.2
1,842
15,147
16.9
(INR Million)
2018E
35,167
16.7
12,286
47,453
16.8
25,745
21,708
16.8
7,261
14,446
5,027
34.8
9,419
19.1
2,195
17,576
16.0
2019E
41,966
19.3
14,513
56,480
19.0
30,091
26,388
21.6
8,055
18,333
6,380
34.8
11,953
26.9
2,785
21,430
21.9
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
2011
3,421
47,666
51,087
430,148
19.3
115,541
22.4
18,884
14,446
514,564
37,483
145,377
11.4
319,532
18.6
2,898
9,273
514,564
2012
3,421
53,642
57,063
489,371
13.8
134,759
16.6
42,410
17,423
606,268
35,326
174,025
19.7
377,560
18.2
3,261
16,096
606,268
2013
3,421
60,225
63,647
576,149
17.7
156,521
16.1
51,870
18,831
710,496
37,200
211,546
21.6
440,967
16.8
3,975
16,808
710,496
2014
3,421
66,085
69,506
597,313
3.7
186,638
19.2
56,880
22,243
745,941
45,294
241,179
14.0
434,361
-1.5
4,250
20,859
745,941
2015
3,427
73,955
77,381
708,250
18.6
217,835
16.7
23,082
19,791
828,505
47,800
205,688
-14.7
512,850
18.1
4,666
57,500
828,505
2016
2017E
2018E
3,438
3,441
3,441
77,474
83,539
90,764
80,912
86,980
94,205
791,717 965,895 1,207,369
11.8
22.0
25.0
260,526 306,031 359,520
19.6
17.5
17.5
21,766
34,877
39,392
19,905
28,857
34,605
914,300 1,116,609 1,375,570
54,198
70,186
87,579
222,175 255,501 306,601
8.0
15.0
20.0
580,901 726,127 907,659
13.3
25.0
25.0
5,200
5,195
5,191
51,826
59,600
68,540
914,300 1,116,609 1,375,570
2019E
3,441
99,931
103,372
1,509,211
25.0
422,396
17.5
44,393
41,540
1,698,516
112,014
367,922
20.0
1,134,573
25.0
5,186
78,821
1,698,516
Asset Quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
Slippage Ratio
Credit Cost
PCR (Excl Tech. write off)
E: MOSL Estimates
11,484
1,907
3.5
0.6
3.25
1.71
83.4
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
20,878
10,070
2.9
1.4
1.9
0.9
51.8
22,322
9,978
2.5
1.1
1.8
0.8
55.3
(%)
23,332
8,841
2.1
0.8
1.4
0.7
62.1
25 October 2016
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.
Busi. per Empl. (INR m)
NP per Empl. (INR lac)
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio
CASA Ratio
Investment/Deposit Ratio
G-Sec/Investment Ratio
CAR
Tier 1
2011
9.2
10.8
6.3
5.6
5.5
3.7
4.0
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
9.5
10.1
7.4
6.2
6.2
3.3
3.3
2018E
9.1
9.6
7.1
5.9
6.0
3.1
3.1
2019E
8.9
9.4
7.1
5.8
5.8
3.0
3.0
12.0
1.2
56.9
14.4
22.8
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
67.7
17.3
23.9
9.4
0.8
65.3
15.5
25.8
10.4
0.8
65.5
15.2
25.9
12.1
0.8
66.1
14.9
25.7
37.7
57.5
83.4
7.1
40.7
55.5
92.4
8.9
48.5
53.1
100.1
8.9
52.1
53.5
99.8
8.2
54.3
54.7
102.6
9.2
59.0
56.4
110.5
4.1
59.3
56.4
127.3
6.6
59.4
56.0
154.3
7.6
58.4
55.6
188.3
9.5
74.3
26.9
33.8
68.5
16.8
15.6
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
76.5
13.9
13.4
75.2
31.7
26.5
86.9
12.5
12.0
75.2
29.8
25.4
86.6
10.9
10.6
75.2
28.0
24.4
90.2
9.7
9.4
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
ASSUMPTIONS
Deposit Growth
Loans Growth
Investments Growth
Provision Coverage Ratio
Dividend
E: MOSL Estimates
29.9
8.9
29.1
3.4
26.4
0.9
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
1.9
39.4
2.0
4.9
0.1
15.7
1.0
1.3
45.2
11.2
1.7
43.7
1.8
5.9
19.7
13.1
1.1
1.4
47.1
4.2
1.6
43.5
1.8
2.8
-52.9
27.8
0.7
0.9
50.6
7.4
1.5
46.8
1.6
4.6
66.1
16.8
0.9
1.2
54.8
8.3
1.4
51.0
1.5
5.5
19.1
14.1
1.1
1.4
60.1
9.7
1.3
56.7
1.4
6.9
26.9
11.1
1.4
1.8
(%)
25.0
25.0
20.0
62.1
13.9
19.3
18.6
11.4
83.4
8.5
13.8
18.2
19.7
84.7
9.0
17.7
16.8
21.6
72.2
9.0
3.7
-1.5
14.0
70.4
10.0
18.6
18.1
-14.7
64.7
11.0
11.8
13.3
8.0
43.0
7.0
22.0
25.0
15.0
51.8
9.2
25.0
25.0
20.0
55.3
10.9
25 October 2016
12

Federal Bank
Corporate profile
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
Company description
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Dec-16
Promoter
DII
FII
Others
0.0
31.4
28.0
40.7
Sep-16
0.0
30.1
22.2
47.8
Dec-15
0.0
30.2
10.1
59.7
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Amansa Holdings Privaye Limited
Hdfc Trustee Co Ltd
Reliance Capital Trustee Co Ltd
Yusuffali Musaliam Veettil Abdul Kader
Birla Sunlife Trustee Company Private
% Holding
4.3
4.2
4.1
3.7
3.3
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)
FY17
FY18
MOSL
forecast
4.6
5.6
Consensus
forecast
4.4
5.9
Variation (%)
5.2
-5.0
Source: Bloomberg
Source: Capitaline
25 October 2016
13

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