Rakesh Jhunjhunwala-owned Federal Bank’s share price may rally as much as 30% from current levels on the back of a sharp recovery in business, according to various brokerage firms. The private bank has seen a strong recovery after the second wave of covid-19, and has reported a healthy 9.7% on-year growth in gross advances while the total deposit base has grown by 10% during the same period. The midcap bank stock has been in Rakesh Jhunjhunwala’s portfolio since at least 2016. Federal Bank’s share price is currently trading at Rs 85 per share, up 25% so far this year.
Emkay Global – Buy
Target price – Rs 110
Upside – 29.5%
Analysts at Emkay Global believe Federal Bank is transforming itself into a next-gen private bank via its neo-banking tie-ups across assets, liabilities, and payments businesses. The brokerage firm believes that this strategy will not only help Federal Bank thrive in the new era of banking, but also reduce the incremental cost of business in the long run. Federal Bank has also diversified into higher-margin CV, MFI, PL and Card businesses, which analysts say should drive up net interest margins. “Federal Bank remains our preferred pick in the small/mid-cap space, apart from Equitas, given its better liability/asset quality profile, management stability, digital adoption and expected improvement in return ratios,” Emkay Global added.
Axis Securities – Buy
Target price – Rs 100
Upside – 18%
Axis Securities continues to like Federal Bank considering it is well-placed on account of its improved business mix, strong liability franchise, adequate capitalisation, and better-rated borrowers. The brokerage firm said that the revamped focus on the retail lending segment will gradually boost margin improvement which will lead to sustainable high ROAs. “We maintain a BUY rating on the stock in the backdrop of attractive valuations and value it at 1.1x FY23E ABV to arrive at a target price of Rs 100,” Axis Securities said.
Motilal Oswal – Buy
Target price – Rs 110
Upside – 29.5%
Federal Bank has seen strong growth in deposits during the July-September quarter as total customer deposits grew by 11% on-year basis and 2.5% from the previous quarter. With this, the CASA ratio has improved to 36.2%, which is the highest CASA ratio level for the bank. The liquidity coverage ratio of Federal Bank continues to remain high at 226% against 216% in the previous quarter. “We expect an improvement in margin in 2QFY22, supported by a recovery in credit trends and lower cost of funds. We maintain our Buy rating with a TP of Rs 110 per share,” analysts at Motilal Oswal said.
Big Bull Rakesh Jhunjhunwala owns 5.47 crore equity shares of Federal Bank. The ace investor had increased his shareholding in the lender at the end of the April-June quarter to 2.78% from 2.4% earlier. At the current market price, Rakesh Jhunjhunwala’s stake in Federal Bank is worth more than Rs 465 crore.
(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)
