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FUNDAMENTAL
ST CK

Federal Bank Ltd. one of the highest in the industry. This along with
the existence in a highly regulated environment
Accumulate Target Price Rs 122 has helped the bank to tide over the recession with
Value Parameters minimum impact to its financial stability.
500469 The bank has been expanding organically over the
BSE Code FEDERALBNK past few months. The bank believes in extending
NSE Symbol their reach to their customers by making its services
CMP Rs 107 available to all, 24x7. The bank has branches and
Face Value Rs 2 ATMs across India in addition to the representative
52 Week High/Low Office at Abu Dhabi that serves as a nerve centre for
Market Cap (Rs cr) Rs 109/44 the NRI customers in UAE.
EPS (TTM) 18525 Investment Rationale
PE Ratio (x) 4.82
22.29 ¡ Quality of assets improved during the
quarter with gross NPA’s at 2.3 vs 2.8 in the
Shareholding Pattern % (Mar’ 17) corresponding quarter of previous year.

Company Overview ¡ Fresh accretion during the quarter cooled to
Rs 244 crs vs. Rs 536 crs in the corresponding
Federal Bank, earlier known as Travancore Federal Bank, quarter of previous year.
was incorporated in 1931. Though initially it was known as
the Travancore Federal Bank, it gradually transformed into ¡ The bank’s top-line performance was up as net
a full-fledged bank under the able leadership of its Founder, interest income increased by 23% to Rs 842 crs
K P Hormis. The name Federal Bank Limited was officially compared to Rs 686 crs YoY & Rs 791 crs QoQ.
announced in the year 1947 with its headquarters nestled on
the banks on the river Periyar. Since then there has been no ¡ Gross advances for the quarter under review
looking back and the bank has become one of the strongest and grew by 32% YoY and deposits grew by 23% YoY.
most stable banks in the country. It began operations with an
authorized capital of Rs 5,000. In the beginning it was engaged ¡ Bank’s focuses on digital expansion, as they have
in auction chitty and other banking transactions related to witnessed heavy traction in this segment. This
agriculture and industry. Today it is the largest traditional gives them a chance to generate more fee based
private sector banks in the country. income.
The bank is the fourth largest bank in India in terms of capital
base and can easily boast of a Capital Adequacy Ratio of 17.23%, ¡ Bank plans to making existing distribution
channels strong and deep. This will enhance
5 ARIHANT CAPITAL ¡ MAY 2017 banks productivity and decrease CTI.

Concern

¡ Poor earnings growth by companies, slow pace of
investments, risk aversion of banks due to rising
bad loans, and availability of alternative funding
sources for corporates pulled down credit growth
during the year.

¡ As the global markets become more competitive
and volatile, commercial success will depend on
the ability to operate and scale up in an uncertain
environment with effective risk management.
Technology and analytics will become the
cornerstones of improved risk management in
the country.

Valuations
At CMP stock trades at P/ABV multiple of 1.7x on
FY19E. We have valued the stock at P/ABV multiple
of 2.3x & arrived at fair value of Rs 122 per share and
have ‘ACCUMULATE’ rating.