FedFina Q1 Results Review - Growth Momentum Sustained; Increase In Credit Cost Is Transitory: ICICI Securities

ICICI Securities Report

Fedbank Financial Services Ltd. sustained its strong growth momentum (assets under management up 8% QoQ) during Q1 FY25; however, a sharp increase in provisions to Rs 352 million versus Rs 177 million QoQ restricted return on assets expansion.

While cost of borrowings rose sharply to 9.3% in Q1 FY25 versus 8.6% in Q4 FY24, greater then 100 basis points QoQ improvement in asset yields at 17.4% resulted in better spread sequentially.

Total disbursement during Q1 FY25 grew by 15% QoQ to Rs 50 billion; however, non-gold loan disbursements fell sharply to Rs 10.3 billion versus Rs 14.8 billion QoQ. Most asset quality metrics indicated softness –

1. Gross non-performing loans ratio increasing to 2% versus 1.7% QoQ with GNPL in mortgage portfolio rising to 3% versus 2.2% QoQ;

2. 1+ days past due growing to 8% versus 7.4%; and

3. Stage three provisions falling to 19% versus 20% QoQ.

Considering robust profitability with return on assets at 2.4%

We maintain 'Buy' and our target price of Rs 184, valuing the stock at two times price to book value on September 25E book value per share.

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