Ace investor Rakesh Jhunjhunwala bets massively on this bank

The most preferred stock of Rakesh Jhunjhunwala is Federal Bank. The big bull has even hiked his holding in this company during December 2018 quarter. In this period, he bought more shares in four stocks, interestingly it was Federal Bank where his buying stood. He increased his holding by another 1.71% in Federal, taking his overall stake at 3.45% with 67,471,060 equity shares which are currently worth at Rs 567.8 crore. However, the real question, whether it was a wise choice to make more buying in Federal Bank, because the stock price has plummeted in one month’s time. 

On Friday, the share price of Federal Bank finished at Rs 84.20 per piece down by 2.26% on BSE. However, the stock has plunged by nearly 3% as it also touched an intraday low of Rs 84 on the exchange. 

Notably, the stock has corrected from over Rs 96-level in one month’s time. It was trading near Rs 96.65-level on January 09, and has now nosedived by over 13% up till date. Hence, just like Jhunjhunwala is it worth buying Federal Bank. 

Nitin Aggarwal, Alpesh Mehta and Yash Agarwal Research Analysts at Motilal Oswal in their research note said, “ FB has maintained strong business momentum and is reporting a gradual improvement in operating earnings. Fresh slippages have elevated, but healthy recoveries have enabled controlled credit cost/NPL ratios. With normalcy returning to home state and corporate/retail loan book gaining size in loan mix, we expect the slippage ratio to improve, supporting earnings. Strong capitalization levels and a robust liability franchise will enable market share gains in both corporate and retail segments. We revise up our FY19/20 PAT estimate by 6%/3% and raise the target price to INR115 (1.4x Sep’20E BV). Maintain Buy.”

Mona Khetan and D. Vijiya Rao analysts at Reliance Securities said, “we believe improvement in return ratios will be more gradual than earlier factored in, resulting in RoA/RoE of 0.9%/12% by FY20E. The stock currently trades close to its 5 year average P/ABV of 1.4x. Trimming down our earnings by 12-14% for FY19E/20E to factor in lower margin and higher provisioning expenses, we maintain our BUY recommendation on the stock with a downwardly revised Target Price of Rs102, assigning an adjusted PBV of 1.6x FY20E.”

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Rs 102 price target with buy outlook is also given by analysts at Prabhudas Lilladher.

In Prabhudas views, key positives were sustained CASA growth of 24% YoY, PCR improved to 46% and strong other income led from fee income. Bank’s ROA improvement delta lies in NIM recovery & lowering opex/assets which restricts our trading multiples to 1.5x despite strong loan growth, improving fees and stable liability franchise. 

Shivaji Thapliyal and Raghav Garg, Research Analysts at Nirmal Bang said, “We have retained our NII estimates, revised our PPOP estimates by 0.4%/0.3%/0.3% and PAT estimates by 0.6%/0.5%/0.4% for FY19/FY20/FY21, respectively. We have retained Buy rating on FBL, revising our target price to Rs122 (from Rs117 earlier), valuing the stock at 1.5x 1HFY21E P/BV.”

Rakesh Kumar and Chintan Shah analysts at Elara Capital said, “High credit growth momentum, traction in fee income, re-setting of delinquency base post accounting for floods related NPLs & ILFS exposures, the bank’s return ratios would improve. We re-iterate the stock rating at Accumulate with a revised TP of INR 105 (from INR 86) at 1.7x FY20E P/ABV.”

If we take in Friday’s market price, then Federal Bank is set to give you maximum 31% return ahead. Hence, Jhunjhunwala knows the potential and is well placed to get rich from this bank. Thereby, when prices of Federal Bank drops, as an investor one should rather look for buying opportunities. 

Recently, Jhunjhunwala told, the passion for investing and the eat-drink-sleep- dream stock markets routine is the secret behind his fortune, he said, admitting that he cannot be anything else but a stock market player, reported by PTI.