RESULTS REVIEW 3QFY18 16 JAN 2018

Federal Bank
BUY
INDUSTRY BANKS Win some, lose some
CMP (as on 15 Jan 2018) Rs 113 Asset quality mishaps dragged FB’s 3Q performance, Highlights of the quarter
Target Price Rs 138 even as the bank continues to deliver on most  Post the improvement in 2Q, asset quality took a hit,
Nifty 10,742 operational metrics. Core earnings (+20%) were in largely owing to stress across segments, especially in
Sensex 34,844 line with estimates led by stable NIM (3.33%) and education (in Kerala) and corp loans. Consequently,
KEY STOCK DATA sustained loan growth. Controlled cost escalation GNPAs rose ~11% QoQ to ~Rs 21.6bn (2.52%). Lower
Bloom ntberg FB IN (+7% YoY), healthy fee growth (22%) and a drop in restructured loans (1.7%), miniscule exposure (Rs
No. of Shares (mn) 1,967
provisions (-8% QoQ) led to a net earnings beat (7%). 550mn) to NCLT accounts and downtrend in SMA-II
CASA ratio was steady at ~33%, despite the higher loans augur well for asset quality. However, we have
MCap (Rs bn) / ($ mn) 223/3,521
base. The rising share of better rated corp loans (72% revised our slippage assumptions to 1.5% from 1.4%
6m avg traded value (Rs mn) 1,095 vs. 70% QoQ) was an additional positive and LLP to 63bps vs. 57bps earlier for FY18-20E.
STOCK PERFORMANCE (%) 
Though FB has heavily invested in personnel and Robust growth of ~22/5% YoY/QoQ was led by corp
52 Week high / low Rs 128/73 technology, the branch light-distribution heavy loans (+31% YoY) while growth was largely broad based
3M 6M 12M strategy has enabled the bank to control costs. This sequentially. Within retail loans (+14% YoY), HL (+26%)
Absolute (%) (3.1) (1.9) 56.6 coupled with increasing business through the and mortgages (+22%) grew at a swift pace. Despite
Relative (%) (10.5) (10.7) 28.7 maturing RM structure will lead to oplev benefits the rapid corp growth, we derive comfort on asset
(420bps reduction in C-I ratio) over FY18-20E. We quality given that merely ~11% of these loans are rated
SHAREHOLDING PATTERN (%) below investment grade. We have factored in a loan
remain constructive, despite factoring in higher LLPs
Promoters - CAGR of 22% over FY18-20E
(63bps) and a 6% cut in our earning estimates as
FIs & Local MFs 34.83  Near-term outlook: Despite strong core metrics, FB
RoAAs will improve 13bps over FY18-20E. Maintain
FPIs 37.93 BUY with a TP of Rs 138 (2x Dec-19 ABV of Rs 69). may witness pressure due to the asset quality blip.
Public & Others 27.24
FINANCIAL SUMMARY
Source : BSE
(Rs mn) 3QFY18 3QFY17 YoY (%) 2QFY18 QoQ (%) FY17 FY18E FY19E FY20E
Net Interest Income 9,500 7,914 20.0% 8,989 5.7% 30,526 37,528 44,730 52,379
PPOP 5,614 4,749 18.2% 5,832 -3.7% 19,249 23,779 28,549 33,398
Darpin Shah PAT 2,600 2,057 26.4% 2,637 -1.4% 8,308 10,034 12,536 16,039
darpin.shah@hdfcsec.com EPS (Rs) 1.3 1.2 10.7% 1.3 -2.0% 4.8 5.2 6.5 8.3
+91-22-6171-7328 ROAE (%) (ex revaluations) 9.8 9.5 9.9 11.6
ROAA (%) 0.81 0.80 0.85 0.93
Adj. BVPS (Rs) 46.4 57.0 63.0 70.8
Pranav Gupta P/ABV (x) 2.44 1.99 1.80 1.60
pranav.gupta@hdfcsec.com P/E (x) 23.5 21.9 17.5 13.7
+91-22-6171-7328 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 FEDERAL BANK: RESULTS REVIEW 3QFY18

Five Quarters At A Glance

Rs mn 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 YoY Growth QoQ Growth In line with estimates with stable NIM
Net Interest Income 7,914 8,424 8,007 8,989 9,500 20.0% 5.7% and 22% loan growth
Non-interest Income 2,633 2,821 3,291 2,872 2,286 -13.2% -20.4%
Treasury Income 860 540 1,120 750 290 -66.3% -61.3%
Operating Income 10,547 11,245 11,298 11,861 11,786 11.7% -0.6%
Fee grew ~22% YoY (flat QoQ)
Operating Expenses 5,798 5,753 5,719 6,029 6,172 6.5% 2.4%
Pre-provision Profits 4,749 5,492 5,579 5,832 5,614 18.2% -3.7% Staff cost dipped 4% QoQ largely due
Provisions & Contingencies 1,588 1,227 2,364 1,768 1,624 2.3% -8.1% to lower pension provisions; provided
PBT 3,161 4,265 3,214 4,064 3,990 26.2% -1.8%
Rs 120mn towards wage hike
Provision For Tax 1,104 1,699 1,113 1,427 1,390 25.8% -2.7%
PAT 2,057 2,566 2,102 2,637 2,600 26.4% -1.4%
LLP at Rs 1.2bn i.e. 58bps; MTM
Balance Sheet items/ratios
provisions of Rs 110mn
Deposits (Rs bn) 922 977 958 972 1,005 9.0% 3.4%
CASA Deposits (Rs bn) 320 318 320 326 338 5.7% 3.5%
Advances (Rs bn) 696 733 763 806 850 22.0% 5.3% SA grew ~4% QoQ while CA dipped
CD ratio (%) 75.5 75.1 79.6 83.0 84.5 901 bps 154 bps ~12%; Retail deposits stood at 96%
CAR (%) 12.3 12.4 15.3 14.6 14.4 213 bps -22 bps
Tier I (%) 11.6 11.8 14.7 14.1 13.8 221 bps -25 bps
Profitability 80% of the banks’ book is linked to
Yield On Advances (%) 10.50 10.29 9.99 9.54 9.54 -96 bps 0 bps MCLR; Mgt has guided for a NIM of
Cost Of Deposits (%) 6.26 6.12 6.09 5.79 5.73 -53 bps -6 bps ~3.25% for FY18
NIM (%) 3.32 3.42 3.13 3.31 3.33 1 bps 2 bps
Cost-Income Ratio (%) 55.0 51.2 50.6 50.8 52.4 -261 bps 154 bps With continuous investment in people,
Tax Rate (%) 34.9 39.8 34.6 35.1 34.8 -11 bps -29 bps
technology and distribution, mgt
Asset Quality
expects C-I ratio to remain between
Gross NPA (Rs bn) 19.52 17.27 18.68 19.49 21.61 10.7% 10.9%
Net NPA (Rs bn) 11.02 9.41 10.61 10.66 11.57 4.9% 8.5% 50-51%
Gross NPAs (%) 2.77 2.33 2.42 2.39 2.52 -25 bps 13 bps
Net NPAs (%) 1.58 1.28 1.39 1.32 1.36 -22 bps 4 bps Corp slippages at ~Rs 980mn vs. Rs
Delinquency Ratio (%) 1.63 1.37 2.27 1.45 1.99 36 bps 54 bps 200mn in 2Q; SME at ~Rs 1.22bn vs. Rs
Coverage Ratio (%) Reported 71.0 71.8 70.3 70.0 70.0 -101 bps 0 bps 1.07bn QoQ and Retail at ~Rs 1.5bn
Restructured book (%) 2.09 1.75 1.74 1.67 1.68 -41 bps 1 bps (incl. Rs 710mn from educational
Change In Estimates loans) vs. Rs 1.06bn QoQ
FY18E FY19E FY20E
(Rs mn)
Old New Change Old New Change Old New Change
NII 37,521 37,528 0.0% 45,187 44,730 -1.0% 53,153 52,379 -1.5%
PPOP 23,747 23,779 0.1% 28,668 28,549 -0.4% 34,023 33,398 -1.8%
PAT 10,557 10,034 -4.9% 13,533 12,536 -7.4% 16,811 16,039 -4.6%
Adj. BVPS (Rs) 58.6 57.0 -2.7% 64.7 63.0 -2.6% 72.2 70.8 -2.0%
Source: HDFC sec Inst Research
Page | 2
 FEDERAL BANK: RESULTS REVIEW 3QFY18

Strong loan growth was Healthy Loan Growth Of ~22/5% YoY/QoQ Share Of Large Corp Further Inches Up To 39.3%
Advances (Rs bn) (LHS) Chg (%) (RHS) Agri SME Large Corporate Retail
broad-based, led by Corp
Rs bn %
(+31% YoY) and Agri (+30%) 950 35 100%

850 30
80%
~70% of incremental loans in
750 25
the corp segment were to A+ 60%
650 20
corporates
550 15 40%
SME and retail loans grew 450 10
20%
~13% and 14% YoY 350 5
respectively 0%
250 0

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Deposit Growth Dips To 9% YoY CASA Deposits Remain Stagnant

Overall CASA grew ~4/2% Deposits (Rs bn) (LHS) Chg (%) (RHS) CASA (Rs bn) (LHS) CASA ratio (% - RHS)
YoY/QoQ with 10/12% decline 1,050 Rs bn % 30 350 Rs bn % 36
in CA 950 25 34
300
850
SA grew a mere 6/4% 20 32
750 250
YoY/QoQ 15 30
650
200
Retail deposits form ~96% of 10 28
550
the total deposits 450 5 150 26
350 0 100 24
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
Source: Bank, HDFC sec Inst Research Source: Bank, HDFC sec Inst Research

Page | 3
 FEDERAL BANK: RESULTS REVIEW 3QFY18

NIMs Flat QoQ Core C-I Ratio Improved 60bps QoQ

NIMs flat YoY and QoQ at
Cost of Deposits Yield on Advances NIM (RHS) C/I ratio (%) Opex/Other income (x, RHS)
3.33%
65.0 % x 2.9
12.00 % % 3.45
Mgt has guided for a NIM of 11.00 3.40 60.0 2.7
3.25% for FY18 10.00
3.35 2.5
55.0
3.30 2.3
9.00 3.25
~80% of the book is already 50.0 2.1
8.00 3.20
linked to MCLR 45.0 1.9
3.15
7.00 1.7
3.10 40.0
Core C-I ratio improved 6.00 3.05 1.5
~60bps QoQ to 53.7%; overall 5.00 3.00 35.0 1.3
C-I ratio rose ~1500bps to

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
~52.4%
Source: Bank, HDFC sec Inst Research Source: Bank, HDFC sec Inst Research
Mgt has guided for a C-I ratio
in the range of 50-51% for
FY18 and 48-49% Non-interest Income: Fees Steady QoQ; Treasury Income Dips
Rs mn 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18
Fee 808 1,010 920 1,080 860 1,040 1,010 1,250 1,150 1,250 1,260 1,710 1,460 1,540 1,540
Other opex was up ~22/9%
% Avg
YoY/QoQ owing to marketing Loans
0.73 0.86 0.76 0.87 0.68 0.83 0.78 0.90 0.78 0.81 0.75 0.96 0.78 0.78 0.74
exp, technology and GST FX 262 350 300 260 410 330 190 370 270 270 330 410 340 410 390
impact Treasury 400 420 770 960 380 260 230 410 830 860 860 540 1,120 750 290
Recovery 57 75 195 1,060 290 190 410 240 130 240 180 160 370 170 70
Total 1,565 1,959 2,199 3,060 1,939 1,823 1,833 2,269 2,370 2,616 2,633 2,821 3,291 2,872 2,286
growth %
-27% 37% 41% 72% 24% -7% -17% -26% 22% 44% 44% 19% 39% 10% -13%
(YoY)
Source: Bank

Page | 4
 FEDERAL BANK: RESULTS REVIEW 3QFY18

Retail slippages higher at Rs GNPAs Inched Up With Higher Slippages Major Slippages Contributed By Retail Segment
Gross NPA (Rs bn) Net NPA (Rs bn) Retail SME + Agri
1.5bn (2.52% ann.) vs. Rs Corporate Slippages (%, RHS)
Gross NPA (%) - RHS Net NPA (%) - RHS
1.06bn QoQ, led by sharp
25.00 Rs bn % 3.50 100% 5.0
surge in educational NPAs (Rs
3.00 4.5
710mn vs. Rs 30mn in 2Q) 20.00 80%
4.0
2.50
15.00 60% 3.5
Corporate slippages too 2.00
3.0
jumped to Rs 980mn (1.21% 10.00 1.50 40% 2.5
ann.) in 3 ACs from a mere 1.00 2.0
~Rs 200mn in 2Q 5.00 20%
0.50 1.5
- - 0% 1.0
After gradual decline over the

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
previous two qtrs, SME
slippage too inched up QoQ to
Rs 1.22bn (vs. Rs 1.07bn) Source: Bank, HDFC sec Inst Research Source: Bank, HDFC sec Inst Research

Mgt guides for similar run GNPA Movement: Higher Slippages Led By Retail Segment
rate for slippages in 4Q Rs mn 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18
Opening 10,874 10,164 10,310 10,670 10,577 13,046 14,976 16,826 16,678 17,473 18,197 19,516 17,271 18,680 19,489
The restructured book stood Slippages 1,830 1,760 2,340 1,800 3,170 4,050 5,710 5,360 2,830 2,660 2,730 2,440 4,250 2,840 4,110
at ~1.7% (added 2ACs during Ann. (%) 1.66 1.51 1.94 1.45 2.51 3.23 4.41 3.87 1.93 1.72 1.63 1.37 2.27 1.45 1.99
the qtr) Recoveries 2,000 1,044 1,360 1,270 693 1,340 3,330 2,368 1,100 1,146 1,110 1,500 1,381 1,528 1,887
W/Os 540 570 620 610 6 780 530 3,140 930 790 460 180 1,460 502 100
SMA II continues to trend Closing 10,164 10,310 10,670 10,590 13,048 14,976 16,826 16,678 17,478 18,197 19,357 20,276 18,680 19,489 21,612
lower QoQ; ~50% down on Source: Bank, HDFC sec Inst Research
YoY basis
Slippages Break Up
Rs mn 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18
Recoveries and Upgrades
Retail 530 550 310 360 460 570 610 850 670 630 860 550 970 1,060 1,500
were higher QoQ led by SME
SME 730 1050 650 950 1090 1550 1150 1540 1340 1350 1190 1220 1140 1,070 1,220
segment
Corp 420 0 1250 320 1430 1740 3750 2540 450 420 550 370 1690 200 980
Agri 150 160 130 170 190 190 200 430 340 260 140 300 450 510 420
Near NIL W/Os during the
Source: Bank, HDFC sec Inst Research
quarter

Page | 5
 FEDERAL BANK: RESULTS REVIEW 3QFY18

RoAA Dip Led By Fall In Other Income

NII Other income Opex Other provision Tax RoA (RHS)

% %
5.0 1.7
4.0 1.5
3.0 1.3
2.0 1.1
1.0 0.9
- 0.7
-1.0 0.5
-2.0 0.3
-3.0 0.1
-4.0 -0.1

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

3QFY18
Source: Bank, HDFC sec Inst Research

Page | 6
 FEDERAL BANK: RESULTS REVIEW 3QFY18

P/ABV Band Chart

2.5
140

2.0 120
1.7x
100
+1SD
1.5 1.3x
80
Avg.

1.0 -1SD 60 0.9x

40
0.5x
0.5
20

0.0 0

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
Source: Bank, HDFC sec Inst Research

Peer Valuation
Mcap CMP TP ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)
BANK Rating
(Rs bn) (Rs) (Rs) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
ICICIBC # 2,111 329 BUY 371 114 134 151 16.3 14.0 12.4 2.20 1.76 1.56 10.5 10.8 9.5 1.20 1.19 1.18
IKMB 1,969 1,035 BUY 1,213 181 205 235 37.7 31.2 24.6 4.80 4.13 3.50 13.9 13.3 14.5 1.89 1.89 1.94
AXSB 1,467 561 NEU 567 221 258 292 39.2 20.2 14.5 2.54 2.18 1.92 6.0 10.0 12.6 0.57 0.98 1.18
IIB 1,000 1,682 BUY 1,889 380 444 524 28.1 22.6 18.2 4.43 3.79 3.21 16.5 17.7 18.7 1.81 1.84 1.84
FB 223 113 BUY 138 57 63 71 21.9 17.5 13.7 1.99 1.80 1.60 9.5 9.9 11.6 0.80 0.85 0.93
CUB 118 178 BUY 206 56 66 78 19.8 17.1 14.3 3.18 2.70 2.28 15.5 15.4 15.8 1.58 1.57 1.57
KVB 92 126 BUY 151 69 72 78 27.1 16.3 9.5 1.84 1.74 1.61 6.0 8.9 14.5 0.52 0.77 1.18
DCBB 63 203 BUY 220 78 88 99 23.9 18.9 15.6 2.60 2.32 2.06 10.4 11.1 12.2 0.97 1.02 1.02
SBIN # 2,609 302 BUY 387 119 157 190 20.0 12.9 7.4 1.75 1.32 1.08 4.5 6.1 10.0 0.29 0.38 0.60
BOB 379 164 BUY 215 97 136 175 24.8 13.0 7.5 1.69 1.20 0.94 4.1 7.4 11.8 0.22 0.39 0.62
AUSFB 201 706 NEU 550 76 90 107 63.7 49.3 36.7 9.31 7.88 6.62 14.7 16.5 18.8 1.85 1.77 1.92
Equitas 56 164 NEU 160 64 67 73 101.9 41.3 23.6 2.57 2.46 2.26 2.4 5.7 9.3 0.54 1.11 1.24
Ujjivan 49 415 BUY 445 146 163 185 376.3 24.5 19.2 2.83 2.54 2.24 0.7 10.9 12.4 0.15 1.90 1.96
Source: Company, HDFC sec Inst Research, # Adjusted for subsidiaries value

Page | 7
 FEDERAL BANK: RESULTS REVIEW 3QFY18

Income Statement Balance Sheet

(Rs mn) FY16 FY17 FY18E FY19E FY20E (Rs mn) FY16 FY17 FY18E FY19E FY20E
Interest Earned 77,482 86,774 103,041 121,048 142,337 SOURCES OF FUNDS
Interest Expended 52,404 56,247 65,513 76,318 89,958 Share Capital 3,438 3,448 3,879 3,879 3,879
Net Interest Income 25,077 30,526 37,528 44,730 52,379 Reserves 77,474 85,976 118,407 128,230 140,798
Other Income 8,082 10,818 11,345 11,792 12,893 Shareholders' Funds 80,912 89,424 122,286 132,109 144,677
Fee Income (CEB) 4,155 5,761 5,887 6,851 7,956 Savings 214,222 263,977 316,770 380,123 448,543
Treasury Income 1,275 3,087 2,750 2,000 1,750 Current 46,304 56,552 63,338 71,255 79,806
Total Income 33,159 41,345 48,873 56,522 65,272 Term Deposits 531,191 656,117 767,657 905,856 1,077,990
Total Operating Exp 18,921 22,095 25,094 27,973 31,874 Total Deposits 791,717 976,646 1,147,765 1,357,234 1,606,339
Employee Expense 10,529 11,638 13,092 14,401 16,474 Borrowings 21,766 58,973 67,819 74,601 87,710
PPOP 14,238 19,249 23,779 28,549 33,398 Other Liabilities & Provs 19,905 24,727 27,199 29,919 34,789
Provisions & Contingencies 7,041 6,184 7,800 8,590 8,675 Total Liabilities 914,300 1,149,769 1,365,070 1,593,864 1,873,515
Prov. for NPAs (incl. std prov.) 5,553 4,051 5,761 6,443 6,541
PBT 7,197 13,065 15,979 19,959 24,723 APPLICATION OF FUNDS
Provision for Tax 2,440 4,757 5,945 7,423 8,683 Cash & Bank Balance 54,198 74,522 74,431 54,101 58,045
PAT 4,757 8,308 10,034 12,536 16,039 Investments 222,175 281,961 322,017 368,741 420,020
Source: Bank, HDFC sec Inst Research, G-Secs 170,040 215,654 252,508 291,805 337,331
Advances 580,901 733,363 905,703 1,104,958 1,325,949
Fixed Assets 5,200 4,895 5,139 5,396 5,801
Other Assets 51,826 55,029 57,780 60,668 63,700
Total Assets 914,300 1,149,769 1,365,070 1,593,864 1,873,515
Source: Bank, HDFC sec Inst Research,

Page | 8
 FEDERAL BANK: RESULTS REVIEW 3QFY18

Key Ratios
FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18E FY19E FY20E
VALUATION RATIOS ASSET QUALITY
EPS (Rs) 2.8 4.8 5.2 6.5 8.3 Gross NPLs (Rsm) 16,678 17,271 22,459 23,561 24,010
Earnings Growth (%) (52.7) 74.7 20.8 24.9 27.9 Net NPLs (Rsm) 9,500 9,412 11,768 9,943 7,442
BVPS (Rs) 47.1 51.9 63.0 68.1 74.6 Gross NPLs (%) 2.84 2.33 2.48 2.13 1.81
Adj. BVPS (Rs) 41.5 46.4 57.0 63.0 70.8 Net NPLs (%) 1.64 1.28 1.30 0.90 0.56
DPS (Rs) 0.70 0.90 0.96 1.20 1.53 Slippages (%) 3.47% 1.64% 1.75% 1.45% 1.20%
ROAA (%) 0.55 0.81 0.80 0.85 0.93 Coverage Ratio (%) 43.0 45.5 47.6 57.8 69.0
ROAE (%) 6.0 9.8 9.5 9.9 11.6 Provision/Avg. Loans (%) 1.0 0.6 0.7 0.6 0.5
P/E (x) 40.9 23.5 21.9 17.5 13.7 ROAA TREE
P/ABV (x) 2.73 2.44 1.99 1.80 1.60 Net Interest Income 2.88% 2.96% 2.98% 3.02% 3.02%
P/PPOP (x) 13.7 10.1 9.2 7.7 6.6 Non-interest Income 0.93% 1.05% 0.90% 0.80% 0.74%
Dividend Yield (%) 0.6 0.8 0.8 1.1 1.4 Treasury Income 0.15% 0.30% 0.22% 0.14% 0.10%
PROFITABILITY Operating Cost 2.17% 2.14% 2.00% 1.89% 1.84%
Yield on Advances (%) 10.37 9.96 9.62 9.35 9.21 Provisions 0.81% 0.60% 0.62% 0.58% 0.50%
Yield on Investment (%) 8.24 7.15 7.00 6.80 6.70 Provisions for NPAs 0.64% 0.39% 0.46% 0.44% 0.38%
Cost of Funds (%) 6.78 6.08 5.82 5.77 5.76 Tax 0.28% 0.46% 0.47% 0.50% 0.50%
Cost of Deposits (%) 6.75 6.11 5.91 5.85 5.80 ROAA 0.55% 0.81% 0.80% 0.85% 0.93%
Core Spread (%) 3.58 3.88 3.80 3.58 3.46 Leverage (x) 11.01 12.12 11.88 11.63 12.53
NIM (%) 3.23 3.28 3.27 3.26 3.22 ROAE 6.01% 9.75% 9.48% 9.86% 11.59%
OPERATING EFFICIENCY Source: Bank, HDFC sec Inst Research,
Cost/Avg. Asset Ratio (%) 2.2 2.1 2.0 1.9 1.8
Cost-Income Ratio (Excl Treasury) 59.3 57.8 54.4 51.3 50.2
BALANCE SHEET STRUCTURE
Loan Growth (%) 13.3 26.2 23.5 22.0 20.0
Deposit Growth (%) 11.8 23.4 17.5 18.3 18.4
C/D Ratio (%) 73.4 75.1 78.9 81.4 82.5
Equity/Assets (%) 8.8 7.8 9.0 8.3 7.7
Equity/Advances (%) 13.9 12.2 13.5 12.0 10.9
CASA (%) 32.9 32.8 33.1 33.3 32.9
Capital Adequacy Ratio (CAR, %) 13.9 12.4 14.3 13.3 12.3
W/w Tier I CAR (%) 13.4 11.8 13.9 12.9 12.0

Page | 9
 FEDERAL BANK: RESULTS REVIEW 3QFY18

RECOMMENDATION HISTORY
Date CMP Reco Target
Federal Bank TP
20-Jan-17 77 BUY 93
160
13-Apr-17 93 BUY 101
140 1-May-17 107 BUY 116
10-Jul-17 116 BUY 128
120
27-Jul-17 115 BUY 129
100 9-Oct-17 118 BUY 136
80 9-Jan-18 112 BUY 141
16-Jan-18 113 BUY 138
60

40
Rating Definitions

Dec-17
Oct-17
Aug-17
Apr-17
Jan-17

Nov-17

Jan-18
Feb-17

Sep-17
May-17

Jun-17

Jul-17
Mar-17

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 10
 FEDERAL BANK: RESULTS REVIEW 3QFY18

Disclosure:
We, Darpin shah, MBA & Pranav Gupta, ACA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to
the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have
beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities
Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

Disclaimer:
This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon
information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its
accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their
securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or
other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement
within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced,
distributed or published for any purposes without prior written approval of HSL.
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition,
investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail
and/or its attachments.
HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report,
including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other
deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.

HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve
months.
HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or
co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor
Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any
compensation/benefits from the subject company or third party in connection with the Research Report.

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066
Compliance Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022) 3045 3600

HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF
C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193

Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

Page | 11
 FEDERAL BANK: RESULTS REVIEW 3QFY18

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330www.hdfcsec.com

Page | 12