Rakesh Jhunjhunwala's largest banking bet can deliver up to 37% return

NEW DELHI: Rakesh Jhunjhunwala's largest banking bet, Federal Bank, has come out with its June quarter business update that showed healthy growth in advances. Analysts' targets on the scrip suggest a potential 37 per cent upside.

The bank said its retail deposits aggregated to Rs 1,72,506 crore for the June quarter, up 9.8 per cent over Rs 1,57,054 crore as of June 30, 2021. Retail deposits share improved to 94 per cent from 93 per cent as of June 30, 2021.

Total deposits aggregated to Rs 1,83,355 crore, up 8.2 per cent YoY from Rs 1,69,393 crore.

The bank’s gross advances rose 16.3 per cent to Rs 1,54,405 crore from Rs 1,32,787 crore YoY. Retail credit book grew 16.7 per cent and wholesale credit book jumped 15.8 per cent.

Retail to wholesale ratio improved to 55:45 from 54:46 in the year-ago quarter, the bank said in a BSE filing.

"Overall, Federal Bank posted healthy growth in advances, aided by strong system-level growth. Deposits were largely flat on a sequential basis as there was stiff competition among the banks to garner the same. CASA trends remained stable with a marginal decline to 36.8 per cent," said Motilal Oswal Securities while suggesting a price target of Rs 130 on the stock.

The brokerage values the core bank at 1.2 times FY24 adjusted book value (ABV) and subscribes Rs 10 per share to its subsidiary and joint venture.

On Monday, the scrip rose 1.6 per cent to Rs 95.10 a piece on BSE. Motilal's target suggests a 37 per cent upside over this price.

Jhunjhunwala and his better half Rekha Jhunjhunwala held a 3.65 per cent stake in the bank as of March 31, which is valued at Rs 720 crore as of the last count.

The Kerala-based private sector bank has exposure to insurance and NBFC business through its joint venture with IDBI and wholly-owned subsidiary Fedfina.

Axis Securities, which has Federal Bank among its top July picks, said the key positives for the bank include its increasing retail focus, strong fee income, adequate capitalisation, and prudent provisioning.

This brokerage expects steady provision requirements along with healthy growth in the balance sheet and net interest margins (NIMs) to deliver a return on asset of 1.1 per cent and return on equity of 13.5 per cent by FY24. It sees the stock at Rs 115 per share.

Angel One is also positive on the stock. This brokerage has a target of Rs 120 on the scrip.

Overall, the scrip has an average target price of Rs 117.36, as per Trendlyne, which suggests a 25 per cent potential upside.

Besides Federal Bank, Jhunjhunwala also owns stakes in Canara Bank and Karur Vysya Bank.

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