Federal Bank Q3 Results Review - Flagged As A Top Pick In 2021, Marches On: Yes Securities
Management enhanced RoA guidance for FY23 and FY24, with no single lever expected to be the dominant driver for RoA expansion
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Yes Securities Report
While Federal Bank Ltd. is now expected to deliver full year FY23 return on asset at 1.25% or slightly better, the FY24 RoA is expected to be 10 basis points higher than FY23 levels. Management stated that RoA improvement would not be dominated by any one single lever.
The FY24 net interest margin guidance stands at 335-340 bps, which is the same as what is now expected for full year FY23. This is higher than the 330 bps guided for (for FY23) during the Q2 FY23 result call.
While the new guidelines for fintech lending somewhat held back gold loans, management stated that gold loans could grow at the pace of 25%.
They further stated that new lending segments, commercial vehicle finance, credit cards and microfinance could double from current levels of about Rs 60-70 billion.
It has been observed that wage hikes have ranged between 10-15% in the past and a 15% hike has been assumed in making provisions. The wage provision impact amounts to about Rs 200 million per month and is effective November 01, 2022.
Federal Bank has added more than 60 branches so far this financial year and should add about 75 in total for the year. The bank will then add about 80-90 branches per year for two years, taking the three-year total to about 250 branches.
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