• DECEMBER 26, 2001

Federal Bank: Turnaround in first half

Federal Bank, one of the largest old private sector banks, reported a sharp improvement in overall financial performance during the first half of the current fiscal. The bank's profits before tax doubled due to a rise in interest margins and a triple digit growth in other income.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Interest Income 2,205 2,639 19.7% 4,402 5,118 16.3%
Other Income 266 447 68.3% 537 1,076 100.6%
Interest Expenditure 1,673 1,906 13.9% 3,313 3,730 12.6%
Operating Profit (EBDIT) 532 734 37.8% 1,089 1,388 27.5%
Operating Profit Margin (%)24.1%27.8% 24.7%27.1% 
Other Expenditure 435 454 4.5% 859 932 8.5%
Profit before Tax36472799.9%7661,532100.0%
Provisions & contingencies 210 423101.7% 412 81196.8%
Tax - 110 - 60 300 400.5%
Profit after Tax/(Loss) 154 194 25.7% 294 421 43.2%
Net profit margin (%)7.0%7.3% 6.7%8.2% 
No. of Shares (eoy) 21.7 21.7   21.7 21.7  
Diluted Earnings per share*28.335.6 27.138.8 
P/E (at current price)  1.2    0.5  

The bank's revenues from core business of lending increased by 18% in the first half of the year. Federal Bank's efforts to focus on the retail market led by IT initiatives helped it fuel interest income. Interest income on advances accounted for 63% of total operating income. During the fourth quarter of the last fiscal, the bank's interest income was up by marginal 4%. The bank is adequately geared in terms of capital (CAR of 10.8%). This would help it in future business expansions.

Break-up of interest income
(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Interest on advances 1,321 1,637 24.0% 2,696 3,185 18.1%
Income from investments 865 975 12.7% 1,665 1,873 12.5%
Interest on balance with RBI 20 27 37.4% 33 58 73.7%
Others - 0 - 7 2 -77.0%
Total 2,205 2,639 19.7% 4,402 5,118 16.3%

Lower cost of borrowings resulted in about 240 basis points rise in interest margins in 1HFY02. A sharp reduction in cost to income ratio to 38% in 1HFY02 from 53% in the comparable previous period was another achievement. This helped the bank to double its profits before tax. However, a similar rise in provisions and contingencies figure and higher provision for tax (deferred tax provision according to Accounting Standard 22) trimmed bottomline growth of the bank.

At the current market price of Rs 42 Federal Bank is trading at a P/E of 1x its 1HFY02 annualised earnings and Price/Book value ratio of 0.2x. The bank's lower valuations are due to its higher net NPA to advances ratio, which stood at 10.1% as on March 2001. Also, its a regional bank with most branches located in Kerala.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407