1. Q2FY15 Result Update
Federal Bank Ltd. (FB)
October 22, 2014 HOLD MEDIUM RISK PRICE Rs.142 TARGET Rs.156
BFSI
Federal Bank Ltd. (FB) has reported decent set of numbers for the quarter ended
September’14 with better credit growth & stable asset quality. We attended the
conference call of the company and following are the key highlights of the results.
Key Highlights of Q2FY15 Results
• Healthy advances growth coupled with stable margins led to NII growth of 6% YoY &
3% QoQ to Rs.5.8 bn (excl. one-off interest on income tax refund of Rs.270 mn).
Comparatively lower NII growth was to an extent attributed to 35 bps reduction in
base rate. NIM's remained stable at 3.35% (Adj. NIMs 3.25%) which management
expects to remain steady going forward. Non-interest income grew by 36% YoY &
25% QoQ to Rs.2 bn while core-fee income grew by ~13% YoY & 27% QoQ majorly led
by Loan Processing fees & Forex. Improving cost efficiency along with higher non-interest
income led to marginal improvement in Adj. C/I to 50.6% (Q1 - 51.2%).
• Advances & Deposits grew by ~15% YoY & 14% YoY resp. Revival in advances growth
was mainly on account of strong growth in Agriculture (25%), Retail (16%) & SME
(26%) while Corporate portfolio grew marginally by 2% YoY & 9% QoQ. Management
expects revival in Corporate segment over the next few quarters considering the
strong disbursement pipeline. After couple of quarters, even gold portfolio witnessed
healthy growth in Q2 (~20% YoY & 9% QoQ) which mgmt expects to continue going
forward. CASA remained flat at 30.6%. Business outside Kerala has been improving
with CD ratio at ~90%. Credit growth has been ~20% over last 2 quarters while SA
growth has been 32% YoY.
• Asset quality remained stable with GNPA & NNPA at 2.1% (Q1-2.2%) & 0.66% (Q1-
0.68%) resp. Slippages in Q2 stood at Rs.1760 mn (1.4% annualized) with nil slippages
from Corporate segment. Mgmt doesn't foresee any direct impact of coal de-allocation
decision. Restructured book stands at Rs.29 bn (Air-India & Discom - Rs.12
bn).
• Management Guidance: 1. Expects credit growth of +20% in FY15E with better growth
in H2, 2. Non-interest income growth to be ~22-25%, 3. NIMs to remain stable at 3.2-
3.3%, 4. Credit cost for FY15E to be ~50-60 bps, 5. C/I likely to improve to ~48%.
OUTLOOK & VALUATION
Focused approach with well-defined strategies has helped bank to be back on growth
trajectory after couple of quarters. Revival in advances growth across segment as well as
better traction in newer geographies provides better growth visibility. Improving business
mix, better cost efficiency coupled with higher focus on core-fee income generation to
result in better return ratios going forward. Better visibility of profitable growth along
with stable asset quality & improving return ratios instills further confidence. Hence
considering the improving fundamentals & strong growth prospects, we remain positive
on the stock & recommend ‘Hold’ with a price target of Rs.156 based on our FY17E
estimates.
EARLIER RECO
BUY
Price Rs.122
Target Rs.156
Date Sept. 26, 2014
SHARE HOLDING (%)
Promoters -
FII 37.6
FI / MF 27.1
Body Corporate 12.8
Public & Others 22.5
STOCK DATA
Reuters Code
Bloomberg
Code
FED.BO
FB IN
BSE Code
NSE Symbol
500469
FEDERALBNK
Market
Capitalization*
Rs.121,481.0 mn
US$ 1984.9 mn
Shares
Outstanding* 855.5 mn
52 Weeks (H/L) Rs.143 / 72
Avg. Daily
Volume (6m) 5,066,860 Shares
Price Performance (%)
1M 3M 6M
12 12 47
*On fully diluted equity shares
200 days EMA Rs.110
Part of Bonanza
KEY FINANCIALS
Y/E
Mar.
Net Income
(Rs mn)
PAT
(Rs mn)
AEPS
(Rs)
NIM
(%)
P/E
(x)
P/ABV
(%)
ROE
(%)
ROA
(%)
FY14 22,288 8,390 9.8 3.32 14.5 1.8 12.6 1.2
FY15E 24,013 8,697 10.2 3.29 14.0 1.7 12.0 1.1
FY16E 27,907 10,426 12.2 3.34 11.6 1.5 13.0 1.1
FY17E 32,735 12,615 14.7 3.35 9.6 1.3 14.2 1.2
ANALYST
Shreyas Bhukhanwala | +91 22 4093 5096
shreyas.bhukhanwala@sushilfinance.com
SALES:
Devang Shah | +91 22 4093 6060/62
devang.shah@sushilfinance.com
Please refer to important disclosures at the end of the report For private Circulation Only.
Sushil Financial Services Private Limited Member : BSEL, SEBI Regn.No. INB/F010982338 | NSEIL, SEBI Regn.No.INB/F230607435.
Regd. Office : 12, Homji Street, Fort, Mumbai 400 001. Phone: +91 22 40936000 Fax: +91 22 22665758 Email : info@sushilfinance.com

2. October 22, 2014
Federal Bank Ltd.
2
QUARTERLY STATEMENT (Rs.mn)
Y/E March Q2FY14 Q1FY15 Q2FY15
Interest Income 17,144 17,715 18,696
Interest Expense 11,661 12,073 12,638
Net Interest Income 5,484 5,642 6,058
Other Income 1,434 1,565 1,959
-Core Fee Income 889 808 1,010
Operating Income 6,918 7,208 8,017
Employee Exps. 1,704 2,044 2,038
Other Operating Exps. 1,674 1,648 1,881
Operating Profit 3,539 3,515 4,098
Provisions & Cont. 110 221 457
PBT 3,429 3,295 3,641
Tax 1,171 1,092 1,238
PAT 2,258 2,202 2,403
(%) YoY 5.0 108.4 6.4
PROFIT & LOSS STATEMENT (Rs.mn)
Y/E March FY14 FY15E FY16E FY17E
Interest income 69,461 73,383 83,399 96,740
Interest expense 47,173 49,370 55,492 64,006
Net interest income 22,288 24,013 27,907 32,735
Other income 6,937 8,095 9,607 11,335
Total income 29,226 32,108 37,514 44,069
Operating expenses 14,421 16,162 18,264 20,727
Pre-provision Profit 14,805 15,947 19,250 23,343
Total Provision 2,684 2,966 3,688 4,514
-Provision for NPL 2,282 2,553 3,026 3,646
PBT 12,121 12,981 15,561 18,828
Provision for Tax 3,731 4,284 5,135 6,213
PAT 8,390 8,697 10,426 12,615
Growth % 0.1% 3.7% 19.9% 21.0%
FINANCIAL RATIO STATEMENT
Y/E March FY14 FY15E FY16E FY17E
Profitability Ratios
EPS 9.8 10.2 12.2 14.7
Earnings growth (%) 0.1 3.7 19.9 21.0
CEPS 10.9 11.4 13.5 16.2
PPP / Share 17.3 18.6 22.5 27.3
ROAA (%) 1.2 1.1 1.1 1.2
ROE (%) 12.6 12.0 13.0 14.2
Dividend Payout (%) 24 25 23 20
Efficiency Ratios (%)
C-I Ratio 49.3 50.3 48.7 47.0
Other Inc/Total Inc 19.4 21.2 21.9 22.5
Cost Asset Ratio 2.0 2.0 2.0 2.0
CASA 31.2 32.1 33.1 34.2
Business /Emp. (in mn) 98.6 113.1 129.4 150.3
Profitability / Emp. 0.80 0.82 0.97 1.14
Asset Quality Ratios (%)
Gross NPLs 2.5 2.2 2.1 2.1
Net NPLs 0.7 0.6 0.5 0.5
Coverage 70 73 75 75
Provision/ Loans 0.55 0.60 0.61 0.62
Source: Company, Sushil Finance Research Estimates
Y/E March FY14 FY15E FY16E FY17E
Asset-Liab. Profile (%)
Capital Adequacy Ratio 15.1 14.5 13.5 12.5
- Tier I CAR 14.6 14.0 13.1 12.2
C/D ratio 73 75 77 78
Loan Growth (1) 18 19 20
Deposit Growth 4 14 16 18
Balance Sheet Growth 5 13 15 18
Equity / Assets 9.3 9.0 8.7 8.2
Equity / Loans 16.0 14.9 13.9 12.9
Spreads Analysis (%)
Yield on Advances 11.4 11.3 11.2 11.0
Yield on Investments 7.8 7.7 7.5 7.4
Cost of funds 7.4 7.1 6.9 6.8
Net Interest Margin 3.32 3.29 3.34 3.35
Valuation
Dividend Yield (%) 1.4 1.5 1.7 1.8
BV / Share 81 89 98 110
Adjusted BV / Share 78 85 94 106
P/E (x) 14.5 14.0 11.6 9.6
P/PPP (x) 8.2 7.6 6.3 5.2
P/ABV (x) 1.8 1.7 1.5 1.3

3. October 22, 2014
Federal Bank Ltd.
Rating Scale
This is a guide to the rating system used by our Institutional Research Team. Our rating system
comprises of six rating categories, with a corresponding risk rating.
Risk Rating
Risk Description Predictability of Earnings / Dividends; Price Volatility
Low Risk High predictability / Low volatility
Medium Risk Moderate predictability / volatility
High Risk Low predictability / High volatility
3
Total Expected Return Matrix
Rating Low Risk Medium Risk High Risk
Buy Over 15 % Over 20% Over 25%
Accumulate 10 % to 15 % 15% to 20% 20% to 25%
Hold 0% to 10 % 0% to 15% 0% to 20%
Sell Negative Returns Negative Returns Negative Returns
Neutral Not Applicable Not Applicable Not Applicable
Not Rated Not Applicable Not Applicable Not Applicable
Please Note
z Recommendations with “Neutral” Rating imply reversal of our earlier opinion (i.e. Book Profits / Losses).
z ** Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we
have enhanced our return criteria for such stocks by five percentage points.
z Stock Review Reports: These are Soft coverage’s on companies where Management access is difficult or Market
capitalization is below Rs. 2000 mn. Views and recommendation on such companies may not necessarily be based
on management meeting but may be based on the publicly available information and/or attending Company AGMs.
Hence Stock Reviews may be just one-time coverage’s with an occasional Update, wherever possible.
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