This bank title increased by 23% in one month; Should you invest?

Portfolio of Rakesh Jhunjhunwala: Many retail investors scour the portfolios of ace investors to uncover value picks. And, a good number of Rakesh Jhunjhunwala stocks have generated alpha returns over the past month. One of them being Federal Bank, which after hitting its 52-week high in April 2022, Federal Bank’s stock price suffered a strong sell-off rising 25% in mid-May. 2022. However, after the announcement of strong results for Q1FY23, the banking stock rebounded strongly and hit a new 52-week high at Rs 109.45 each, erasing all the losses it had suffered during the consolidation phase. Over the past month, it has risen from around Rs 89 to Rs 107.50, registering an increase of almost 23% over this time horizon.

Ownership of Rakesh Jhunjhunwala

According to the Federal Bank shareholding pattern for the January to March 2022 quarter, Rakesh Jhunjhunwala and his wife Rekha Jhunjhunwala hold a stake in this South Indian bank. The Jhunjhunwala couple owns 2,10,00,000 or 1.01% of the bank’s capital. However, as an individual, Rakesh Jhunjhunwala owns 5,47,21,060 shares of Federal Bank or a 2.64% stake in the bank. Thus, the Jhunjhunwala couple together hold a total stake of 3.65% in Federal Bank.

Should you invest?

On the reason for the rise in Federal Bank shares, Santosh Meena, head of research at Swastika Investmart, said, “Federal Bank Ltd. due to improved asset quality and growth in advances. The bank saw an increase in NIMs, strong growth in base fee income, particularly on the retail front, a notable improvement in asset quality, and a sequential reduction in the cost-income ratio, although the last quarter was impacted by one-time family pension charges. One thing to keep in mind is that new retail slippages have increased; however, most of it comes from the restructured portfolio and the bank expects the LGDs to be low as they are fully secured by secured mortgages. We are positive about the bank due to its strong granular liability franchise, cost of funds advantage, partnership with fintech and digital initiatives, and visibility into growth.

Meena went on to add that the Federal Bank’s share price ROA is expected to increase due to the growing share of high-yield retail loans.

Analysts at Motilal Oswal Financial Services have maintained a ‘buy’ rating for the stock at a target price of Rs 130 each, it believes the bank is on track to deliver improved yield ratios. “The core asset quality ratio has seen marginal improvement, driven by healthy recoveries and upgrades. RoE of 1.1%/13.6% for FY24,” he said in a report.

LKP Securities also reiterated the buy rating with an increased target price of Rs 124 (based on 1.1x FY24E Adj. BVPS). He believes that asset quality should remain stable with a gradual improvement in profitability. “We’ve priced in steady provisioning requirements as well as stable balance sheet growth and therefore expect it to deliver RoA/RoE of 1.1%/13% by FY23E,” he said. he adds.

The views and investment advice of the experts in this report are their own and not those of the website or its management. Users are advised to check with certified experts before making any investment decision.

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