Federal Bank Q4 Results Review - One-Time Cost Hurts Earnings; Strong Outlook For FY25: Axis Securities

Axis Securities Report

Federal Bank Ltd.'s reported healthy credit growth of 20/5% YoY/QoQ. Federal Banks higher-yielding portfolio contributes ~24.6% of the total portfolio versus 21.8% YoY. Deposit growth improved to 18/5% YoY/QoQ, driven by TDs (plus 24/7% YoY/QoQ) as current account savings account deposit growth was muted (plus 6/1% YoY/QoQ). Thus, the CASA ratio declined to 29.4% versus 32.7/30.6% YoY/QoQ.

Net interest income grew by 15/3% YoY/QoQ. Cost of Deposits inched up by 17 basis points QoQ, while yields improved by 11 bps during the quarter. Net interest margin improved by 2 bps QoQ and stood at 3.21%. Noninterest income grew by 3% YoY; however, it was down 13% QoQ as Q3 FY24 had a one-time gain from a stake sale in FedFina.

Employee expense was significantly higher at 49/28% YoY/QoQ, reflecting the impact of one-time employee cost to the tune of Rs 162 crore. Resultantly, C-I Ratio climbed to 62.3% versus 49.5/51.9% YoY/QoQ. Higher Opex weighed on pre-provision operating profit growth, which de-grew by 17/23% YoY/QoQ.

Provisions came in lower-than-expected, supporting earnings. The Federal Bank reported a provision write-back of ~Rs 95 crore. profit after tax remained flat YoY and de-grew by 10% QoQ. Return on assets stood at 1.22%. Gross non-performing assets improved by 16 bps to 2.13% on the back of lower slippages (slippage ratio of 0.7% versus 1% YoY/QoQ) and strong granular recoveries. Restructured book tapered to 1% versus 1.1% QoQ.

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