STOCK IN FOCUS
* Federal Bank closed 2.5% higher as compared to decline of 0.94% in benchmark NIFTY.
* We believe that the Bank will continue to deliver further improvement in operational performance led by improving loan book growth and changing portfolio-mix.
* The Bank continues to witness moderation in SMA-2 balance, which clearly suggests fresh slippage during 1HFY18 was more of a one-off event. Notably, the Bank is gradually coming out of the scenario marked with higher provisioning and continued stress on asset quality for last few quarters.
* It envisages loan book to grow by 20-25% in FY18 led by strong growth in Retail & SME segments. However, it will focus on better opportunities in corporate segment as well. Further, the Bank expects NIM at ~3.25% level in next 4-5 quarters.
* We expect strong traction in earnings to continue due to robust growth in loan book, moderate credit cost and healthy margins.
* We reiterate our BUY recommendation on the stock with an upward revised Target Price of Rs150 (from Rs125 earlier) based on 2.3x (vs. 2.1x earlier) FY19E Adjusted book value.
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