Federal Bank shares have rallied about 23 per cent in a month on the back of the lender announcing strong Q1FY23 results, the banking stock rebounded strongly and climbed to a new 52-week high. Should you invest?
Rakesh Jhunjhunwala Portfolio: A big number of retail investors scan portfolios of ace investors to find out value picks. And, a good number of Rakesh Jhunjhunwala stocks have generated an alpha return in the last one month. One of them being, Federal Bank, which after climbing to its 52-week high in April 2022, Federal Bank share price went through a heavy sell-off retracing to the tune of 25 per cent by mid-May 2022. However, after the announcement of strong Q1FY23 results, the banking stock rebounded strongly and climbed to a new 52-week high of ₹109.45 apiece levels, paring all the losses it had incurred during the consolidation phase. In the last one month, it has surged from around Rs 89 to Rs 107.50 levels, logging a near 23 per cent rise in this time horizon.
Rakesh Jhunjhunwala shareholding
As per Federal Bank shareholding pattern for January to March 2022 quarter, Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala hold stake in this south Indian bank. Jhunjhunwala couple own 2,10,00,000 or 1.01 per cent stake in the bank. However, in an individual capacity, Rakesh Jhunjhunwala holds 5,47,21,060 Federal Bank shares or a 2.64 per cent stake in the bank. So, Jhunjhunwala couple together holds a total of 3.65 per cent stake in Federal Bank.
Should you Invest?
On reason for rise in Federal Bank shares, Santosh Meena, head of research at Swastika Investmart said, “Federal Bank Ltd. has seen a great performance post its Q1 FY23 results as the bank had posted strong results with net profit rising 64 per cent YoY due to improvement in asset quality and growth in advances. The bank witnessed a rise in NIM’s, strong growth in core fee income especially on the retail front, noteworthy improvement in the asset quality, and a reduction in cost-to-income ratio sequentially, albeit the last quarter was impacted by one-time family pension costs. One thing to keep in mind is that fresh slippages in retail have increased; however, the major portion is emanating from the restructured book and the bank expects LGDs to be low as they are completely backed by secured mortgages. We are positive about the bank due to its strong granular liability franchise, cost of funds advantage, partnership with fintech & digital initiatives, and visibility of growth.”
Meena went on to add that the ROA of Federal Bank share price is expected to rise due to the rising share of high-yielding retail loans.
Analysts at Motilal Oswal Financial Services have maintained a ‘buy’ rating to the stock at a target price of Rs 130 apiece, it believes that the bank is on track to deliver improved return ratios. “Headline asset quality ratio saw a marginal improvement, led by healthy recoveries and upgrades. We marginally raise our FY23/FY24 earnings estimate by 3 per cent/4 per cent and expect a RoA/RoE of 1.1 per cent/13.6 per cent in FY24,” it said in a report.
LKP Securities also reiterated buy rating with increased target price of Rs 124 (based on 1.1x FY24E Adj. BVPS). It believes that the asset quality is likely to stay stable with gradual improvement in profitability. “We have incorporated steady provision requirements along with stable growth in the balance sheet and thus expect it to deliver RoA/ RoE of 1.1 per cent/13 per cent by FY23E,” it added.
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