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Rakesh Jhunjhunwala stock: Federal Bank reports modest Q4 results, analysts expect strong 45% upside

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The lender reported its January-March quarter results last week where net profit rose 13.1% on year. Ace investor Rakesh Jhunjhunwala owned a 3.65% stake in Federal Bank at the end of the January-March quarter.

Federal Bank share price opened with gains on Monday morning as investors reacted to the modest January-March quarter financial results reported by the lender that were in line with expectations. However, minutes into the day’s trade the overall bearish market sentiment took over, sending the stock down nearly 2% to hit a low of Rs 89.35 per share. The lender reported its January-March quarter results last week where net profit rose 13.1% on year. Ace investor Rakesh Jhunjhunwala owned a 3.65% stake in Federal Bank at the end of the January-March quarter.

Results at a glance

  • Federal Bank reported a net income of Rs 1,525 crore, up from Rs 1,420 crore in the year-ago period, a jump of 7.4%.
  • The lender reported an operating profit of Rs 798.2 crore in the January-March quarter, down 9.8% from the previous year. 
  • Provisions fell to Rs 75.2 crore from Rs 242.3 crore in the year-ago period.
  • Net profit rose 13.1% to clock in at Rs 540.5 crore.
  • Deposits rose 5.2% from a year ago
  • Advances were up 9.9%

Analysts bullish on Federal Bank

ICICI Securities: Buy
Target price: Rs 125 per share | Upside: 39.8%

“Federal Bank’s FY22 / Q4FY22 earnings are characterised by management’s ability to bring in the much-needed stability and sustainability in its financial performance despite covid-related challenges,” ICICI Securities said in a note. Federal Bank’s credit cost, incremental stressed asset formation, growth and profitability remained well within its guidance range for the fourth consecutive quarter. The management has set a more than 15% credit growth target for this fiscal year. Federal Bank reported GNPLs at 2.8% against 3.06% in the previous quarter, making analysts more bullish. “Considering the improving visibility on it sustaining 1%+ RoA in FY23/24E, maintain BUY with an unchanged TP of Rs 125,” ICICI Securities said.

Motilal Oswal: Buy
Target price: Rs 130 | Upside: 45%

Federal Bank reported a modest quarter according to analysts at Motilal Oswal. They added that the earnings were supported by lower provisions even as NII growth weakened due to margin compression. “Business growth stood modest and is likely to gain traction over FY23E. The bank’s liability franchise remained strong with retail deposit mix at ~94% and CASA ratio at ~36.9%,” analysts at Motilal Oswal added. The brokerage firm has maintained a ‘Buy’ rating with a target price of Rs 130, valuing the lender 1.2x FY24E ABV + INR10/share from subs/JV.

LKP Securities: BUY
Target price: 116 | Upside: 29.8%

Earnings of Federal Bank were in line with estimates pinned by LKP Securities. However, the brokerage firm added that Federal Bank disappointed with par NII growth (7.4% YoY) with NIMs compression of 16bps, and operating expenses higher because of staff cost. “The bank’s credit quality is in check with no major hiccups. However, the business growth will be key monitorable as management guided 15% credit growth for FY23. A consistent growth may drive stock re-rating with a higher valuation than 1.0x of book value,” LKP Securities said in a note. 

Big Bull Rakesh Jhunjhunwala owns 7.75 crore equity shares of Federal Bank worth roughly Rs 680 crore. Rakesh Jhunjhunwala has continued to hold his stake in Federal Bank without any changes for the last three quarters now. During the July-September quarter, Rakesh Jhunjhunwala had increased his stake in the lender from 2.8% to the current 3.65%. The big bulls owns the stake in Federal Bank along with his wife Rekha Jhunjhunwala.

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