This private sector bank from Jhunjhunwala's portfolio is up 29% in 1-month

Shares of Federal Bank hit a three-year high at Rs 109.40, and have gained 12 per cent in the last four trading sessions on the back of healthy Q1 performance.

Shares of Federal Bank hit a three-year high at Rs 109.40, up 2 per cent on the BSE in Wednesday’s intraday trade. The stock has gained 12 per cent in the last four trading sessions, after the bank reported a healthy operational performance led by strong business growth in June quarter (Q1FY23).  

The stock of private sector has rallied 29 per cent in the past one month, as compared to 7.4 per cent rise in the S&P BSE Sensex. The stock traded at its highest level since July 2019. It had hit a record high of Rs 128 on October 17, 2017.

Investor Rakesh Jhunjhunwala (2.64 per cent) and his wife Rekha Jhunjhunwala (1.01 per cent) collectively held 3.65 per cent stake in Federal Bank at the end of March 2022 quarter, the shareholding pattern data shows. The bank has yet not filed June shareholding pattern data.

In Q1FY23, Federal Bank reported the highest-ever net profit of Rs 601 crore, up 64 per cent year-on-year (YoY) from Rs 367 crore in Q1FY22. Net interest income grew 13 per cent YoY at Rs 1,605 crore from Rs 1,418 crore in a year ago quarter. The gross non-performing asset (NPA) and net NPA ratios improved 81 bps and 29 bps respectively. GNPA and NNPA brought down to 2.69 per cent and 0.94 per cent respectively.

Healthy business traction, in line with guidance, coupled with steady asset quality and focus on RoA of around 1.25 per cent remain key for upward re-rating, according to analysts at ICICI Securities. The brokerage firm maintains ‘hold’ rating on Federal Bank.

Management confidence guiding growth of 16-18 per cent remains encouraging. The bank’s healthy business traction and diversified mix to aid earnings. Digital & fintech partnerships to aid growth in deposit franchise. The focus on high yield products (CV/CE, micro & personal loans) to aid margins, analysts said in its result update.

Overall asset quality improved sequentially, partly offset by slippages from the restructured portfolio, translating into low credit costs (41bps annualised). Federal Bank’s FinTech ecosystem partnerships on either side of the balance sheet are focused on driving business productivity (pace of customer acquisition) and greater efficiencies, said analysts at HDFC Securities. “We raise our FY23E/FY24E earnings estimates to factor in higher loan growth and lower credit costs; we maintain BUY, with a revised target price of Rs 132 (1.3x Mar-24 ABVPS),” the brokerage firm added.