FB’s Q2FY24 PAT jumps to Rs 954 Cr on lower Provisions
Company Overview:
Federal Bank is engaged in providing a wide range of banking and financial services, including commercial banking, retail and corporate banking, working capital finance, insurance, and treasury products and services. In the Q2FY24, the bank expanded its branch network by adding 23 new branches, bringing the total count to 1,389 branches. The bank has a customer base of 1.72 crore and is supported by a workforce of 14,270 employees.
Strong Business Growth:
Federal Bank experienced significant growth in its deposit base, with a 23.1% year-on-year (YoY) and 4.7% quarter-on-quarter (QoQ) increase. This outpaced its loan growth, which saw a 19.6% YoY and 5.1% QoQ growth. The growth in deposits was primarily driven by an increase in term deposits, resulting in a 67 basis point (bps) QoQ decline in the CASA ratio to 31.2%. Loan growth was supported by healthy rises in retail (6% QoQ), commercial (7%), and agricultural (8%) businesses. Additionally, Commercial Vehicles/Construction Equipment (CV/CE) and Microfinance Institutions (MFI) segments performed well, growing 11% and 27% QoQ, although on a lower base. The bank’s management has reaffirmed its guidance for loan and deposit growth of 18-20% for FY24.
NIM contracted by 14 bps YoY but improved by 1 bps QoQ
Federal Bank’s Net Interest Income (NII) increased by 7.18% QoQ and 16.72% YoY, with the reported NIM improving by 1 bps QoQ to 3.16% due to a 14 bps QoQ increase in yield to 9.35%. The bank’s management has revised its NIM guidance for FY24 to 3.25% from 3.3% to account for the expected increase in deposit costs by 18-20 bps. The Cost-to-Income (C/I) ratio increased to 52.5% in Q2, up from 50.9% in Q1. The bank anticipates that operational costs will remain elevated due to its decision to invest in network expansion and branding to capitalize on increased volumes.
Slippages up 81 bps QoQ but asset quality remains stable – GNPA/NNPA – 2.3%/0.6%
Despite a slight increase in slippages of 81 bps QoQ, Federal Bank maintained stable asset quality. GNPA and NNPA stood at 2.3% and 0.6%, respectively, down from 2.4% and 0.7% in Q1, with PCR of 72.3%. The bank’s credit cost dropped to one of the lowest levels in the sector at 9 bps, compared to 35 bps in Q1 and 68 bps in Q2FY23. As a result, the bank reported higher-than-expected Profit After Tax (PAT) growth of 12% QoQ and 35% YoY.
Valuation and Key Ratios:
Federal Bank’s stock is currently trading at a valuation of 1.37 times its book value of Rs 105 per share at the current market price of Rs 144. The company reported healthy growth in returns, with Return on Equity (ROE) improving by 136 bps YoY (with a slight decrease of 1 bps QoQ) to 15.72%. Return on Assets (ROA) increased to 1.36%, up by 15 bps YoY and 6 bps QoQ. The Interest Coverage Ratio stood at 1.4x, indicating the company’s solvency.
Standalone Q2FY24 Results Highlights:
➡️ Interest income increased by 35.6% YoY and 8.57% QoQ to Rs 5,455 crore, while interest expenses grew by 50.4% YoY and 9.4% QoQ to Rs 3,398 crore, resulting in net interest income of Rs 2,056 crore, a growth of 16.7% YoY and 7.1% QoQ.
➡️ Other income rose by 19.8% YoY to Rs 730 crore, and the bank expects this run-rate to continue in the future.
➡️ Pre-Provision Operating Profit (PPOP) increased by 9.2% YoY and 1.70% QoQ to Rs 1,324 crore, driven by the rise in the C/I ratio to 52.5% in Q2 compared to 50.9% in Q1. The bank anticipates elevated operational costs due to its strategic investments in network expansion and branding.
➡️ PAT surged by 35.5% YoY and 11.7% QoQ to Rs 954 crore, primarily due to a significant reduction in provisions, down by 83.6% YoY and 71.7% QoQ to Rs 44 crore.
➡️ Earnings Per Share (EPS) stood at Rs 4.17, reflecting a growth of 24.8% YoY and 3.4% QoQ.
Conclusion:
Federal Bank is a prominent banking institution known for providing a wide array of banking and financial services, which encompass commercial banking, retail and corporate banking, working capital finance, insurance, and treasury products and services. In the second quarter of FY24, the bank strengthened its presence by adding 23 new branches, expanding its total branch network to 1,389. With a substantial customer base of 1.72 crore and a dedicated workforce of 14,270 employees, the bank is well-equipped to serve a diverse range of clients. In conclusion, Federal Bank stands as a reliable and expanding financial institution, poised for continued growth and success in the industry.
