Should You Buy This Rakesh Jhunjhunwala Stock Next Week Post Q1 Numbers?

Federal Bank reported mixed performance in Q1FY2024. However the stock ended on a green note on Friday at a high of 1.97% at Rs 129.30 apiece owing to strong business growth and operational performance in the quarter. Post its Q1 numbers several brokerage firms are seeing good upside on the shares of Federal Bank which is also a portfolio stock of late investor Rakesh Jhunjhunwala.

Federal Bank Q1FY24 Result

Federal Bank (FB) recorded a net profit of Rs 854 crore for Q1FY24, up 42% (YoY) from Q1FY23's net profit of Rs 600.7 crore. Net interest margin (NIM) climbed to Rs 1,918 crore from Rs 1,604.5 crore in the first quarter of FY23, a 19.6 percent rise. Its net interest income (NII) climbed 19.6% (YoY) in the first quarter of FY24, from Rs 1,604.5 crore in the year-ago quarter to Rs 1,918 crore. The gross non-performing asset (GNPAs) ratio dropped from 2.69% in the same quarter of the previous year to 2.38% in the first quarter of FY24. Net NPAs, meanwhile, plummeted to 0.69% from 0.94% reported in the corresponding quarter of FY23.

The first quarter's total income was Rs 5,756 crore, up 41% from Rs 4,081 crore in the same quarter of last year. Provision Coverage Ratio was at 70.02%, while Capital Adequacy Ratio was 14.28%. To Rs 405,982.91 crore, total business increased by 21.17% YoY. Net advances totalled Rs 1,83,487.41 crore as of June 30, 2023, a rise of 20.96%, the bank reported, while total deposits jumped by 21.35% to Rs 2,22,495.50 crore.

Federal Bank Share Price Target

"We believe the bank is well poised to sustain RoA of over 1.2% in the near to medium term despite margin headwinds. Strong asset quality and lower credit cost are likely to support return ratios and reversal in return ratio is unlikely. The bank is looking for capital raise via QIP to fund growth. We believe the bank still has levers to surprise positively from here on, led by operating leverage and higher core fee income. At the CMP, the stock currently trades at 1.1/0.9 its FY2024E/FY2025E BV estimates. Key monitorables remain retail deposit growth and margin trajectory," said the broking firm Sharekhan in a note.

"FB reported a mixed 1QFY24, with a beat in net earnings and a miss in NII. The earnings beat was driven by higher other income, while the NII miss was due to margin compression. Business growth, though, was healthy, led by traction across segments. The liability franchise remained strong, with a retail deposit mix at ~85% and CASA ratio at ~31.9% (but moderated QoQ). The asset quality ratio remained stable, although the slippages came in a tad higher. We broadly maintain our estimates as controlled credit costs and healthy other income compensated for a slight moderation in NII growth. We estimate FB to deliver RoA/RoE of 1.3%/15.8% in FY25. We reiterate our BUY rating with a TP of INR155 (1.2x FY25E ABV)," said Motilal Oswal.

"FB reported a slightly weak quarter with core PPoP missing PLe by 3.7% led by higher opex while asset quality saw a blip as GNPA was 2.38% (PLe 2.28%) due to higher slippages and lower recoveries. Loan growth was 5.2% QoQ (~2.5% for system) and bank expects this momentum to sustain. We expect credit growth of 18% YoY in FY24E. While NIM for Q1'24 declined by 11bps QoQ to 3.3% due to back-ended loan growth and pricing pressures, margins could expand in Q2'24 as yields have risen since the last 45 days. For FY24 we are factoring a NIM decline of 14bps to 3.1%. However, NII/NIM estimates could be upgraded if FB raises capital.

Shareholder approval for fund raise is to the tune of Rs40bn. Credit cost environment remains benign and we raise FY24/25E PAT by 4.5%/2.5% due to lower provisions. Maintaining multiple at 1.5x on FY25E ABV, we retain BUY and raise TP to Rs175 from Rs170," said broking firm Prabhudas Lilladher.

"The stock currently trades at 1x Sep'24E ABV and we value the stock at 1.25x FY25E ABV to arrive at a target price of Rs 160/share, implying an upside of 26% from the CMP. We reiterate a BUY on the stock," said Axis Securities.

Federal Bank Share Price

On Friday, the shares of Federal Bank closed on the BSE at Rs 129.30 apiece up by 1.97% from the previous close of Rs 126.80. The stock made a 52-week-high of Rs 143.35 on (16/01/2023) and a 52-week-low of Rs 96.10 on (14/07/2022).

Federal Bank Shareholding Pattern

During Q4FY23, the company reported promoter shareholding of 26.94%, DIIs stake of 43.66% and public stake of 29.41%. As per the shareholding pattern of Federal Bank for January to March 2023 quarter, late ace investor Rakesh Jhunjhunwala held fully paid up equity shares of 2,45,00,000 or 1.17% stake while his wife Rekha Jhunjhunwala held fully paid up equity shares of 4,82,13,440 or 2.31% stake in the company.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.