COMPANY UPDATE

FEDERAL Knitting RoA improvement strategy; consistency vital

India Equity Research| Banking and COMPANYNAME

At its analyst day, Federal Bank (FB) delineated its strategic intent to EDELWEISS 4D RATINGS improve RoA on the back of a potential uptick in growth, improving NIM profile (via changes in portfolio mix), sustained buildup in fee income, cost Absolute Rating BUY Rating Relative to Sector Outperform containment, and stabilising asset quality. The key themes are: i) Risk Rating Relative to Sector Low Strengthening the core: leveraging data, digitalisation and distribution. ii) Sector Relative to Market Overweight Pursuit of new revenue streams. iii) A branch-light distribution-heavy model (digital and sales approach to business). iv) Gaining prominence outside the home market; v) Maintaining a strong risk architecture. Given MARKET DATA (R: FED.BO, B: FB IN) ongoing macroeconomic challenges and that stress recognition is behind CMP : INR 85 for the bank, management has laid out a credible road map for RoA, whose Target Price : INR 127 52-week range (INR) : 110 / 79 volatility hitherto has impacted the bank’s re-rating. We believe a few quarters of steady showing heron would reinforce investor confidence and Share in issue (mn) : 1,992.5 M cap (INR bn/USD mn) : 169 / 2,365 drive the re-rating. Retain ‘BUY’ with a TP of INR127 (1.5x FY21 P/BV). Key Avg. Daily Vol.BSE/NSE(‘000) : 12,924.6 risk: impending tenor extension approval for MD & CEO.

SHARE HOLDING PATTERN (%) RoA road map: Credible, but talks up revenue… Current Q2FY20 Q1FY20 Volatile profitability has been a key disappointment for the bank. To steadily build up Promoters * - - - profitability, bank is focusing on: i) building granularity (reducing corporate exposure); ii) MF's, FI's & BK’s 37.4 34.8 30.0 expanding the footprint (leveraging sales approach to business, while gaining prominence FII's 31.9 34.4 36.8 outside home market); and iii) creating newer lines of business (higher yield). The bank’s Others 30.7 30.8 33.2 revenue traction is a missing link, which it aims to address via better asset growth, * Promoters pledged shares : NIL changes in loan mix, a steady build-up in fee, and a sales-driven model. (% of share in issue)

…distribution franchise, cost control and quality to aid profitability PRICE PERFORMANCE (%) EW and The strategy is contingent on steady build-up in revenue. Other key variables that would Stock Nifty Financial contribute towards a stable RoE profile are franchise expansion (>16% deposit CAGR with Services Index >90% of retail deposits), cost containment, and stabilising asset quality. Wage negotiation 1 month (4.4) (2.0) (3.2) implies Q4FY20 opex may vary, but increases thereafter are likely to be measured. Credit 3 months 3.1 2.0 1.5 cost should be limited too as large-ticket issues have been taken care of. 12 months 8.5 12.7 17.2

Outlook and valuation: Consistency critical; maintain ‘BUY’ FB’s performance over last the few years has been characterised by soft revenue growth and volatile asset quality. Management strategy, which is centred on leveraging distribution and digital franchise and building new capabilities, is credible. We estimate the bank would clock RoA/RoE of 1.1%/13–14% by FY21. Maintain ‘BUY/SO’. Kunal Shah

Financials (INRmn) +91 22 4040 7579 [email protected] Year to March FY19 FY20E FY21E FY22E

Net revenue 55,274 62,854 74,945 89,010 Prakhar Agarwal Net profit 12,439 16,916 21,176 25,916 +91 22 6620 3076 [email protected] Diluted EPS (INR) 6.3 8.5 10.7 13.1 Adj. BV (INR) 61.1 67.1 75.3 87.4 Anisha Khandelwal Price/ Adj book (x) 1.4 1.3 1.1 1.0 +91 22 6623 3362 [email protected] Diluted P/E (x) 13.6 10.0 8.0 6.5

ROE (%) 9.8 12.1 13.5 14.6 February 26, 2020 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Banking and Financial Services

Knitting RoA improvement strategy Management has devised a road map to deliver sustainable RoA/RoEs contingent upon five key themes:

 Strengthening the core: leveraging data, digital and distribution capabilities

 Pursuing newer streams of revenue (microfinance, CV/CE, credit cards and business banking), which would enhance margins and, hence, improve RoA

 Maintaining a strong risk architecture

 Leveraging the branch-light and distribution-heavy model, i.e. having a digital and sales approach to growing business

 Prominence to dominance and presence to prominence – It envisions expansion beyond home geographies (such as Maharashtra, Tamil Nadu, Karnataka, Gujarat among others) and green shoots are visible reflected in higher incremental market share in those geographies .

Management delineated their strategic intent to knit an RoA improvement strategy contingent on growth uptick, supported by an improving NIM profile (portfolio mix change), sustained build-up in fee income, cost containment, and stabilising asset quality metrics. The bank is, thus, targeting an increase of 25–30bps in RoA over the next two years. We do acknowledge the bank’ strategy is contingent on revenue traction, which is in turn factors in addition of new revenue streams (which we believe might not entirely play out). All in all, FB expects to trace 1.1% /15% RoA/RoE over next two years.

Chart 1: Leveraging the branch-light and distribution-heavy model reflected in steady branch addition while growing RM/sales 1,500 RM Sales (Nos.) 1,790 1500 1,300 1,263 1,440 1,100 1,090 900 (Nos.) 900 (Nos.) 740 700 390 500 50

40

FY11 FY16 FY12 FY13 FY14 FY15 FY17 FY18 FY19

FY10 2010 2020 2022E FY20* Branches (Nos.) RM Sales (Nos.)

Source: Company *till date

2 Edelweiss Securities Limited Federal Bank

Chart 2: Aiming to build dominance in home and prominence in non-home markets 25.0

20.0

15.0 (%) 10.0

5.0

0.0 Network 1 Network 2 Network 1 Network 2 Network 1 Network 2 Deposits Credit Total business FY15 H1FY20 Incremental share

Source: Company *Note- Network 1 is home market and network 2 is non-home market

Chart 3: Key focus will be to maintain strong risk architecture – reflected in declining stressed book and steady credit cost 5.0 2.0

4.0 1.6 3.4 2.7 3.0 1.2 1.1 1.0

2.3

(%) (%) 2.0 1.7 1.6 0.8 0.7 0.7 0.7

1.0 0.4

0.0 0.0 FY16 FY17 FY18 FY19 Q3FY20 FY16 FY17 FY18 FY19 Q3FY20

Stressed book to total average assets Credit cost

Source: Company

Retail banking: Introducing version 2.0  Over time, FB has built up strong core competencies in its chosen asset class. In its new version, it has introduced micro loans and CV/CE loans (the full suite of retail banking products, excluding credit cards that are likely to be introduced in the near future), which would provide growth a push according to management. Consumer retail loans have recorded strong growth over the past few years, and FB’s share in total assets now stands at 25% (book size of INR298bn).

 Retail will continue to be a key growth driver in lending as the bank aims to increase its margins and boost profitability. Its existing-to-business (ETB) cross-selling-led approach helped build a profitable and diversified asset base; similarly, the foray into new customer acquisitions through a multi-channel approach would lead to its next round of growth.

3 Edelweiss Securities Limited Banking and Financial Services

 FB is gaining market share among private banks in categories such as home loans, auto loans, LAP and personal loans, translating to a 3%- market share gain.

Chart 4: Focus on retail book to continue with focus on consumer retail segment – personal, gold loans, MFI among others Loan book mix 350 30.0 25 Agriculture 23 23 SME 10% 280 22 22 22 22 24.0 19% 19 18

210 18.0 (%)

(INR bn) (INR 140 12.0

Retail 70 6.0 30%

0 0.0

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Corporate 9mFY20 Consumer retail assets % of total assets (RHS) 41% Source: Company

Chart 5: Growth momentum strong across chosen asset classes

9.0 Mkt share a % of Pvt sector

7 7.2

5 5 5 5.4

4 4 5 5 (%) 3.6 2 2 1.8 1 1 0 1 1 0.0 HL Auto LAP PL FY17 FY18 FY19 H1FY20

Source: Company

Next leg of growth to be supported by margin enhancers

 The next leg of growth for FB would come from gold loans, micro loans, and CV/CE loans, which would be the key margin-enhancing products. While FB has registered calibrated growth between high- and low-margin products, its focus on leveraging internal client base, not to mention the kicker from partnerships, open market sourcing, will drive further growth.

 Gold loans are handed out digitally at doorstep at ten locations currently (and likely to be extended to nine more), providing convenience and privacy to customer while providing the bank access to 100% new-to-bank customers. The gold portfolio is skewed 64%/36% in favour of rural/semi-urban areas compared with metro/semi urban

4 Edelweiss Securities Limited Federal Bank

areas, which is down from 70%/30% levels in 2018 due to the doorstep model and tie- ups with fintech players. The bank is confident of underwriting INR2–2.5bn worth of gold loans per quarter in the near future (up from INR1–1.1bn at present).

 For MFI loans, FB has tied up with business correspondents (BCs) in chosen geographies, enabling it to connect with their seasoned customer base. The BC model is a capital- efficient route vis-a-vis the acquisition of MFI players as it allows the bank to cherry- pick geographies and maintains operational efficiency.

 The CV/CE business has been a recent addition—in late FY19. The focus in this segment is on new CVs in two geographies: Tamil Nadu/Kerala and Gujarat/Maharashtra—both are managed by separate teams. The bank aims to introduce used CV financing as well as provide these loans in newer geographies. The CV loan book is expected to scale up to INR6bn by the end of FY20.

Chart 6: Till now growth has been calibrated between high & low margin products, but henceforth growth will hinge on latter 100.0 10 20 25 80.0

60.0

(%) 90 40.0 80 75

20.0

0.0 FY11 FY15 9MFY20 Low margin High margin

Chart 7: The focus will continue on business banking taking proportion to ~25%

FY21 FY22 FY20 BuB 17% BuB BuB 25% 25%

Others Others Others 75% 75% 83%

Source: Company

5 Edelweiss Securities Limited Banking and Financial Services

Wholesale banking: Cautious; focus on better-rated customers

 The bank has consciously gone slow on growth in the corporate segment in order to achieve a balanced mix of 50-50 between corporate and retail banking. This book is also increasingly improving in terms of ratings. As much as 96% of the rated corporate book is now investment grade vis-à-vis 74% in FY15.

 FB envisages growth from market share gains as the focus would be on group penetration (to deepen its relationship with clients by providing additional facilities such as foreign currency funding, swap deals, derivatives, margin optimisation, wallet maximisation, etc), sectoral expertise, mid-market expansion, deepening geographic presence and better peer bank relationships.

 Corporate underwriting has been always based on a cash flow and repayment approach rather than merely collateral appraisal, and this has kept the stressed book in control. The stressed book has been inching down: from 3.4% in FY16 to 1.59% at end-Q3FY20.

Chart 8: Composition of wholesale book Asset book - INR630bn Corporate & Insti banking 20%

Commercial banking 80%

Source: Company

Chart 9: The focus has been on better rated corporate , this has also percolated into declining stressed asset book 5.0 100.0 4 12 26 4.0 80.0 3.4 19 2.7 60.0 3.0

2.3 (%)

(%) 1.7 40.0 84 2.0 1.6 55 20.0 1.0

0.0 0.0 FY15 Q3FY20 FY16 FY17 FY18 FY19 Q3FY20

A and above BBB

Source: Company

6 Edelweiss Securities Limited Federal Bank

Subsidiaries: Focused effort, but still a long way to go FB has two subsidiaries: FedServ and Fedfina, a JV with IDBI federal, and an associate company formed with Equirus Securities.  Fedfina, the NBFC arm of the bank, provides gold loans, LAP and business instalment loans. It has 300 branches at present, and the plan is to add 150 branches each over the next two years and also expand the loan book to INR150–170bn over a three-year period (FB expects this loan book to close at INR40bn for FY20).

 FedServ manages the bank’s operations in a cost-efficient way. As many as 70 processes have been already transferred to FedServ and many others are in the offing. With operational efficiencies building through this, FB expects 2–3 percentage points of improvement in cost/income over the next two years.

 Discussions for stake sale in IDBI-Federal are underway and an outcome is shortly expected.

 Equirus provides and equity markets services and is seeing good deal traction.

7 Edelweiss Securities Limited Banking and Financial Services

Company Description Federal Bank (FB) is a Kerala-based regional private sector bank incorporated on 23 April, 1931 as the Travancore Federal Bank Limited. Today, the bank has a presence in most of the states and union territories in the country. The bank also has exposure to insurance and the NBFC business.

FB has an loan book of ~INR1.2tn and a network of 1,255branches and 1,965 ATMs. The bank has made commendable strides in trying to achieve a 50-50% mix for retail and corporate loans which stands at 49-51% at end of Q3FY20 . The bank has been proactively managing its strategy of being a branch-light distribution-heavy franchise with an eye on operational improvements. The push towards digital banking is also expected to reap benefits in the future.

Investment Theme FB’s performance over last the few years has been characterised by soft revenue growth and volatile asset quality. Management strategy, which is centered on leveraging distribution and digital franchise and building new capabilities, is credible. We estimate the bank would clock RoA/RoE of 1.1%/13–14% by FY21. Maintain ‘BUY/SO’.

Key Risks High dependence on the NRI segment (>35% of deposits) exposes FB to regulatory risks.

Softer loan growth momentum and relatively soft SA accretion in the current scenario is negative for the bank.

8 Edelweiss Securities Limited Federal Bank

Financial Statements Key Assumptions Income statement (INR mn) Year to March FY19 FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E Macro Interest income 114,190 131,744 157,005 189,472 GDP(Y-o-Y %) 6.8 5.0 5.8 6.5 Interest expended 72,427 85,358 101,613 122,117 Inflation (Avg) 3.4 4.3 4.8 5.0 Net interest income 41,764 46,386 55,392 67,355 Repo rate (exit rate) 6.3 5.2 4.5 5.0 Non interest income 13,510 16,468 19,553 21,655 USD/INR (Avg) 70.0 71.5 71.0 70.0 - Fee & forex income 10,367 12,440 14,776 17,378 Sector - Misc. income 677 727 777 777 Credit growth 14.0 11.0 13.0 15.0 - Investment profits 2,466 3,300 4,000 3,500 Deposit growth 13.0 12.0 14.0 15.0 Net revenue 55,274 62,854 74,945 89,010 CRR 4.0 4.0 4.0 4.0 Operating expense 27,643 31,923 36,750 43,306 SLR 19.5 18.5 18.0 18.0 - Employee exp 13,778 16,016 17,522 20,045 G-sec yield 7.0 7.1 7.1 7.1 - Other opex 13,865 15,907 19,228 23,261 Company Preprovision profit 27,631 30,931 38,195 45,704 Op. metric assump. (%) Provisions 8,559 8,375 9,960 11,149 Yield on advances 9.8 9.8 9.8 9.8 Loan loss provisions 6,306 8,375 9,960 11,149 Yield on investments 6.4 6.3 6.2 6.2 Investment depreciation 1,232 - - - Yield on asset 8.0 8.0 8.0 8.0 Other provisions 1,021 - - - Cost of funds 5.3 5.4 5.4 5.4 Profit Before Tax 19,072 22,555 28,235 34,555 Net interest margins 2.9 2.8 2.8 2.8 Less: Provision for Tax 6,634 5,639 7,059 8,639 Cost of deposits 5.5 5.5 5.5 5.5 Profit After Tax 12,439 16,916 21,176 25,916 Cost of borrowings 5.2 4.8 5.0 5.0 Reported Profit 12,439 16,916 21,176 25,916 Spread 2.7 2.6 2.6 2.6 Shares o /s (mn) 1,985 1,985 1,985 1,985 Tax rate (%) 34.8 25.0 25.0 25.0 Adj. Diluted EPS (INR) 6.3 8.5 10.7 13.1 Balance sheet assumption (%) Dividend per share (DPS) 1.4 2.0 2.4 2.4 Credit growth 19.8 17.6 21.5 22.0 Dividend Payout Ratio(%) 13.0 13.6 13.1 10.7 Deposit growth 20.5 18.3 19.5 20.9

SLR ratio 19.2 20.0 19.5 19.5 Growth ratios (%) Low-cost deposits 32.4 32.0 32.6 33.1 Year to March FY19 FY20E FY21E FY22E Gross NPA ratio 2.9 3.0 3.1 3.0 NII growth 16.6 11.1 19.4 21.6 Net NPA ratio 1.5 1.6 1.5 1.1 Fees growth 28.6 20.0 18.8 17.6 Net NPA / Equity 12.3 13.7 14.0 14.0 Opex growth 12.8 15.5 15.1 17.8 Capital adequacy 14.1 13.6 13.1 12.6 PPOP growth 22.6 9.8 23.8 23.4 Incremental slippage 1.8 1.8 1.9 1.6 PPP growth 20.6 11.9 23.5 19.7 Provision coverage 50.1 48.6 53.5 61.9 Provisions growth (9.6) (2.1) 18.9 11.9 Adjusted Profit 41.5 36.0 25.2 22.4

Operating ratios Year to March FY19 FY20E FY21E FY22E Yield on advances 9.8 9.8 9.8 9.8 Yield on investments 6.4 6.3 6.2 6.1 Yield on assets 8.0 8.0 8.0 7.9 Cost of funds 5.3 5.4 5.4 5.3 Net interest margins 2.9 2.8 2.8 2.8 Cost of deposits 5.5 5.5 5.5 5.5 Cost of borrowings 5.2 4.8 5.0 5.0 Spread 2.7 2.6 2.6 2.6 Cost-income 50.0 50.8 49.0 48.7 Tax rate 34.8 25.0 25.0 25.0

9 Edelweiss Securities Limited Banking and Financial Services

Balance sheet (INR mn) RoE decomposition (%) As on 31st March FY19 FY20E FY21E FY22E Year to March FY19 FY20E FY21E FY22E Share capital 3,970 3,970 3,970 3,970 Net int. income/assets 2.9 2.8 2.8 2.8 Reserves & Surplus 128,710 143,320 161,727 184,875 Fees/Assets 0.8 0.8 0.8 0.8 Net worth 132,680 147,290 165,697 188,845 Invst. profits/Assets 0.2 0.2 0.2 0.1 Deposits 1,349,543 1,596,149 1,907,270 2,305,129 Net revenues/assets 3.9 3.8 3.8 3.7 Total Borrowings 77,813 79,713 105,713 131,713 Operating expense/assets (1.9) (1.9) (1.9) (1.8) Other liabilities 36,445 42,462 60,547 88,782 Provisions/assets (0.6) (0.5) (0.5) (0.5) Total liabilities 1,596,482 1,865,614 2,239,227 2,714,470 Taxes/assets (0.5) (0.3) (0.4) (0.4) Loans 1,102,230 1,295,120 1,573,571 1,919,756 Total costs/assets (3.0) (2.8) (2.7) (2.6) Cash and Equivalents 100,668 103,797 124,279 150,298 ROA 0.9 1.0 1.1 1.1 Gilts 273,508 335,172 392,532 475,184 Equity/assets 9.0 8.5 7.9 7.4 Others 44,737 52,506 62,705 75,068 ROAE (%) 9.8 12.1 13.5 14.6 Fixed assets 4,670 4,574 4,403 4,157

Other Assets 70,669 74,444 81,738 90,006 Valuation parameters Total assets 1,596,482 1,865,614 2,239,227 2,714,470 Year to March FY19 FY20E FY21E FY22E Credit growth 19.8 17.6 21.5 22.0 Adj. Diluted EPS (INR) 6.3 8.5 10.7 13.1 Deposit growth 20.5 18.3 19.5 20.9 Y-o-Y growth (%) 40.6 36.0 25.2 22.4 EA growth 15.3 17.5 20.5 21.7 BV per share (INR) 66.8 74.2 83.5 95.1 SLR ratio 19.2 20.0 19.5 19.5 Adj. BV per share (INR) 61.1 67.1 75.3 87.4 C-D ratio 82.9 82.3 83.7 84.5 Diluted P/E (x) 13.6 10.0 8.0 6.5 Low-cost deposits 32.4 32.0 32.6 33.1 Price/ BV (x) 1.3 1.0 1.0 0.9 Provision coverage 50.1 48.6 53.5 61.9 Price/ Adj. BV (x) 1.4 1.3 1.1 1.0 Gross NPA ratio 2.9 3.0 3.1 3.0 Dividend Yield (%) 1.6 2.4 2.8 2.8

Net NPA ratio 1.5 1.6 1.5 1.1 Incremental slippage 1.8 1.8 1.9 1.6 Net NPA / Equity 12.3 13.7 14.0 11.6 Capital adequacy 14.1 13.6 13.1 12.6 - Tier 1 13.4 12.6 12.1 11.6

Peer comparison valuation Market cap Diluted P/E (X) Price/ Adj. BV (X) ROAE (%) Name (USD mn) FY20E FY21E FY20E FY21E FY20E FY21E Federal Bank 2,365 10.0 8.0 1.3 1.1 12.1 13.5 28,709 30.5 13.9 2.6 2.2 8.7 15.8 DCB Bank 701 12.7 9.4 1.6 1.4 12.9 15.3 HDFC Bank 91,686 24.5 19.4 3.9 3.4 16.7 18.2 ICICI Bank 47,293 29.9 18.3 2.9 2.5 10.3 15.4 IndusInd Bank 10,983 13.2 9.9 2.2 1.8 17.7 19.6 South 239 4.4 2.5 0.4 0.4 7.5 12.4 1,301 NA NA 0.6 0.6 (12.4) (3.1) Median - 13.0 9.7 1.9 1.6 11.2 15.4 AVERAGE - 15.2 8.4 2.0 1.8 9.2 13.4 Source: Edelweiss research

10 Edelweiss Securities Limited Federal Bank

Additional Data Directors Data Shyam Srinivasan Managing Director & CEO Ashutosh Khajuria Executive Director Grace Elizabeth Koshie Director Shubhalakshmi Panse Director C. Balagopal Director K Balakrishnan Director Abhaya Prasad Hota Director Siddhartha Sengupta Director Manoj Fadnis Director Shalini Warrier Executive Director

Auditors - B S R & Co. LLP *as per last annual report

Holding - Top 10 Perc. Holding Perc. Holding ICICI Prudential Asset Management 4.95 Reliance Nippon Life Asset Management 4.12 Yusuffal Musaliam Veetil 3.76 HDFC Asset Management 3.39 Jhunjhunwala Rakesh 2.87 Franklin Resources 2.75 Vanguard Group 2.52 East Bridge Capital Master Fund 2.43 Amansa Holdings 2.37 Aditya Birla Sun Life 2.18 *as per last available data

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 05 Jul 2019 Jacob Panicker P L Sell 19000.00 12 Jun 2019 Nandakumar V Sell 25000.00 31 May 2019 Deepak Govind P A Sell 49800.00 05 Mar 2019 Thomas P P Sell 37500.00

*in last one year

11 Edelweiss Securities Limited RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk REDUCE SU M Aditya Birla Capital BUY SO H Axis Bank BUY SO M REDUCE SU L BUY SU M DCB Bank BUY SP M HDFC BUY SO L Federal Bank BUY SO L ICICI Bank BUY SO L HDFC Bank BUY SO L Housing Finance HOLD SU M IDFC FIRST BANK BUY SP L BUY SP M IndusInd Bank BUY SO L LIC Housing Finance BUY SO M L&T Finance Holdings HOLD SP M Mahindra & Mahindra Financial Services BUY SP M Magma Fincorp BUY SP M Max Financial Services BUY SO L Manappuram Finance HOLD SU H BUY SO M of HOLD SP M REDUCE SU M REC BUY SP M Repco Home Finance BUY SP M Shriram City Union Finance BUY SP M Shriram Transport Finance BUY SO M BUY SP M State BUY SO L HOLD SU M Yes Bank BUY SP M

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model SECTOR RATING

Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

12 Edelweiss Securities Limited Federal Bank

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Aditya Narain

Head of Research [email protected]

Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services Aavas Financiers, Aditya Birla Capital, AU Ltd, Axis Bank, Bajaj Finserv, Bank of Baroda, DCB Bank, Equitas Holdings, Federal Bank, HDFC, HDFC Bank, HDFC Life Insurance Company Ltd, ICICI Bank, ICICI Lombard General Insurance Company Ltd, IDFC FIRST BANK, Indiabulls Housing Finance, IndusInd Bank, ICICI Prudential Life Insurance Company Ltd, Kotak Mahindra Bank, LIC Housing Finance, L&T Finance Holdings, Max Financial Services, Multi Commodity Exchange of India, Manappuram Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Punjab National Bank, Power Finance Corp, REC, Repco Home Finance, SBI Life Insurance Company Ltd, , Shriram City Union Finance, Shriram Transport Finance, South Indian Bank, Union Bank Of India, Yes Bank Recent Research

Date Company Title Price (INR) Recos

24 -Feb-20 Max Financial Glass half-full, all parties 565 Hold Services agree!; Company Update

17-Feb-20 Muthoot Riding high on gold price 747 Buy Finance tailwind; Result Update

10-Feb-20 Repco Home Delivering on expectations; 347 Buy Finance valuation comfort; Result Update

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period * 1stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594

One year price chart 446 120

(INR) 297 110

149 100

- (INR) 90

14

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80

Jul

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70

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19

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13 Edelweiss Securities Limited

Banking and Financial Services

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