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Pick Of the Week – Federal Bank



We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.



INVESTING RATIONALE


• Slippages coming down: Slippages in Q3FY19 dipped sequentially (~Rs 440cr, 1.69% vs. 1.98% QoQ) led by lower corporate and retail slippages. However, the disappointing rise in SME slippages (~Rs 192cr) continued. The slippage guidance for FY19 at ~Rs 1550bn is very optimistic. The performance of the SME book as well as the decision to utilise the dispensation on these advances in 4Q is a key monitorable.

• Loan growth continues: Robust and broad based loan growth continued, (24/5% YoY/QoQ) led by Corp loans (+28% YoY) and Retail loans (+22%). Within the retail book, home loans grew at ~35% and mortgages grew ~21% while gold loans shrank ~14%

• Higher opex impacts C-I improvement: After a quarter of controlled opex, FB faltered, as opex jumped driven by higher staff costs (18/15% YoY/QoQ). Higher staff costs may be attributed in part, to higher provision for post employment benefits (impact of Rs 35-40lac). Other opex too, increased 15/7% (after a 12% sequential increase in 2Q), partly attributable to higher CSR expenses to meet statutory requirement. Consequently, the sequential improvement in the C-I Ratio in Q2 (360bps) was largely eroded (+200bps QoQ) in Q3..

• We have a BUY with a target of Rs. 100



WE RECOMMEND


  • CMP

    Rs.87.5

  • Target Price

    Rs.100

  • Potential Upside

    14%


* Note: Stock Investment horizon Approx. 6-9 months. CMP as on 8th March, 2019.

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