Earnings Outlook
Federal Bank PAT seen up just 4% as operating expense rise
This story was originally published at 20:52 IST on 21 October 2024
Register to read our real-time news.Informist, Monday, Oct. 21, 2024
By Kabir Sharma
MUMBAI – The first set of quarterly earnings under Federal Bank's new Managing Director K.V. Subramanian is expected to be a modest affair. The private sector bank is expected to report a modest year-on-year increase in net profit in Jul-Sept on the back of a likely rise in operating expenses and a fall in other income. Federal Bank's net profit is projected to rise 4.4% on year to INR 9.95 billion in Jul-Sept, according to an average of estimates from 15 brokerages. Sequentially, net profit is seen down 1.4%.
The bank is scheduled to detail earnings for the Jul-Sept quarter on Oct. 28.
Subramanian took over as managing director and chief executive officer on Sept. 23 from Shyam Srinivasan. In the last earnings under Srinivasan, the bank reported a net profit of INR 10.10 billion for the quarter ended June, up 18.3% on year, supported by a surge in total income. The bank reported a 35.5% year-on-year increase in net profit to INR 9.54 billion in Jul-Sept last year as a 19.8% rise in one-time gain boosted the bottom line.
Provisions of the bank are expected to sustain at the level reported in Apr-Jun, which will also cap gains in the net profit. "One-off corporate fees of the previous year, and high PSLC (priority sector lending capital) gains in Q1FY25 (Apr-Jun) limit YoY/QoQ growth in fee/other income respectively," Dolat Capital Market in a report. A rise in operating expenses may also limit gains in the bank's bottom line. Operating expenses of the bank rose by 26.5% to INR 17.06 billion in the Apr-Jun quarter.
Net interest income, the core income for banks, is seen rising 15.8% on year to INR 23.81 billion in Jul-Sept. Sequentially, the net interest income is expected to show a slight increase of 4%. "NII growth will be in line with average loan growth as the rise in the yield on advances to be in tandem with the rise in cost of deposits," YES Securities (India) said in a note. The bank's net interest income rose 19% on year to INR 22.92 billion in the quarter ended June.
Net interest margin, the gap between the rate of interest an entity generates from its assets and the interest it disburses on its liabilities, is expected to remain stable on a sequential basis. The net interest margin of the bank fell to 3.16% in Apr-Jun from 3.21% in Jan-Mar. The bank said it aims to keep the net interest margin in the range of 3.15-3.25% in the current financial year.
Brokerages expect the bank to maintain good growth in advances and deposits. The Kerala-headquartered bank informed exchanges in September that its gross advances rose 19.3% on year to INR 2.34 trillion as of Sept. 30. The total deposits of the bank grew 15.6% on year to INR 2.69 trillion for the same period. Out of these, customer deposits rose 16% on year to INR 2.54 trillion as of Sept. 30. The bank's current account savings account ratio was 30.07% as of Sept. 30, against 31.17% a year ago, and 29.27% in Apr-Jun.
Brokerages expect a minor improvement in the bank's asset quality. Prabhudas Lilladher expects the lender's gross non-performing asset ratio to decline by 7 basis points. Kotak Institutional Equities also sees a slight improvement in the gross NPA ratio driven by retail and loans to micro, medium, and small enterprises. The bank's gross non-performing asset ratio was 2.11% as on Jun. 30, marginally down from 2.13% a quarter ago. The net NPA was at 0.60% as on Jun 30, the same as a quarter ago.
Analysts will keenly await the bank's strategy under the new managing director. The management's outlook on credit growth and margins will also be in focus.
On Monday, shares of the bank closed 1% lower at INR 193.39 on the National Stock Exchange.
Following are the Jul-Sept earnings estimates for Federal Bank, based on reports compiled by Informist from 15 brokerage houses:
| Brokerage firm | Net interest income (in INR million) | Net profit (in INR million) |
| Anand Rathi Share and Stock Brokers Ltd | 23,429.00 | 10,241.00 |
| Antique Stock Broking Ltd | 24,050.00 | 10,339.00 |
| Axis Securities Ltd | 23,620.00 | 9,670.00 |
| Centrum Broking Ltd | 24,076.00 | 9,478.00 |
| Dolat Capital Market Pvt Ltd | 24,268.00 | 10,172.00 |
| Elara Securities (India) Pvt Ltd | 22,966.00 | 9,163.00 |
| Emkay Global Financial Services Ltd | 23,920.00 | 10,528.00 |
| IDBI Capital Market Services Ltd | 23,879.00 | 10,032.00 |
| Kotak Institutional Equities | 23,592.00 | 9,606.00 |
| Motilal Oswal Financial Services Ltd | 23,808.00 | 10,041.00 |
| Nirmal Bang Equities Pvt Ltd | 23,978.00 | 10,332.00 |
| Nomura Equity Research | 23,500.00 | 9,900.00 |
| Prabhudas Lilladher Pvt Ltd | 24,101.00 | 9,480.00 |
| Sharekhan Ltd | 23,990.00 | 10,080.00 |
| YES Securities (India) Ltd | 23,951.00 | 10,260.00 |
| Average | 23,808.53 | 9,954.80 |
| Number of responses | 15 | 15 |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Saji George Titus
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