Federal Bank Q1 Results Review - Earnings Inline; Margin Contracts Further: Motilal Oswal

Motilal Oswal Report

Federal Bank Ltd. posted a mixed quarter, with inline profit after tax and lower-than-expected net interest income. Profit after tax grew 42% YoY to Rs 8.5 billion, aided by high other income (28% beat). The NII miss was due to a 16 basis point fall in NIM to 3.15%.

The provision coverage ratio was stable at ~71%.

Gross advances grew 21% YoY, driven by a broad-based pickup in all business segments. Deposit growth too was healthy, aided by strong traction in term deposits. Thus, the current account and savings account ratio moderated to 31.9%.

Slippages came in at Rs 4.9 billion, led by a 77.6% QoQ increase in the retail segment.

Gross/net non-performing asset ratios remained stable at 2.38%/0.69%, while restructured loans improved ~22 bp QoQ to ~1.4%.

Federal Bank reported return on asset/return on equity of 1.3%/15.7% in Q1 FY24. We broadly maintain our estimates as controlled credit costs and healthy other income compensated for higher opex.

We estimate Federal Bank to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our 'Buy' rating on the stock.

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