Rakesh Jhunjhunwala Stocks: March quarter results to act as trigger for Federal Bank share; brokerages see up to 43% upside

Rakesh Jhunjhunwala Stocks: Federal Bank has reported healthy March quarter results and that could act as a top trigger for this private bank stock. Several brokerages are bullish on this Rakesh Jhunjhunwala-backed lender. They see an upside of up to 43 per cent in the share price of the bank from the Friday closing price of Rs 91 per share on the BSE. 

The stock was trading positively despite weakness in Nifty50 and Nifty Bank index. The stock gained over 4 per cent in the intraday trade while shedding some points to end at Rs 94.2 per share on the BSE. It was up around 4 per cent at the closing time. 

On Friday, Federal Bank reported around 13 per cent year-on-year (YoY) growth in standalone net profit to Rs 541 crore in the March 2022 quarter as against Rs 478 crore in the same quarter previous fiscal.  

On the asset quality front, Federal Bank’s gross non-performing assets (NPAs) improved to 2.80 per cent of the gross advances as of March 31, 2022, from 3.41 per cent a year ago.  

Federal Bank is a Rakesh Jhunjhunwala portfolio stock where the ace investor holds 75,721,060 equity shares, which translates into 3.7 per cent stake in the lender, as per the latest shareholding pattern of the company. 

Federal Bank reported a modest quarter with net earnings supported by lower provisions even as NII (Net Interest Margins) growth weakened due to margin compression. Business growth stood modest and is likely to gain traction over FY23E.  

Motilal Oswal broadly retained its earnings estimates for FY23/FY24 and estimate RoA/RoE at 1.1%/12.8% for FY24, while maintaining a Buy stance with a target price of Rs 130 per share, which implies a nearly 43 per cent upside in the stock. 

“The bank’s liability franchise remained strong with retail deposit mix at 94% and CASA ratio at 36.9%. Asset quality ratios also improved led by moderation in slippages and further supported by healthy recoveries/upgrades. PCR remained stable at 66%,” the brokerage said in its note.  

Similarly, Improved growth outcomes of Federal Bank are on the anvil, YES Securities said, while maintaining a Buy rating with a target price of Rs 130 per share, as same as that of Motilal Oswal. 

“The management guided for loan growth “north of 15%” for FY23, though the internal aspiration is higher at about 20%. Management sees NIM (Net Interest Margin) improving by 7-8 bps in FY23 compared with a base level of 320 bps,” YES Securities said in its earnings review.  

Even Kotak Institutional Equities maintained a Buy rating on Federal Bank, with an unchanged target of Rs 120 per share (32 per cent upside). It said, “The bank is steadily showing improvement in its return ratios and we see further improvement led by healthy operating profit growth.”