Rakesh Jhunjhunwala portfolio: Motilal Oswal bullish on this stock, sees over 40% upside

Brokerage house Motilal Oswal has maintained its bullish stance on Federal Bank, a part of Big Bull’s portfolio, after the company posted its business update for the quarter ended December 2021.
 
The stock opened a tad higher at Rs 88.80 against the previous close of Rs 88.45 on BSE. It has been gaining for the last four trading sessions and has risen 8.79 per cent during the same period.
 
With a market capitalisation of more than Rs 18,700 crore, the shares stand higher than 5 day, 20 day, 100 day and 200 day moving averages but lower than 50 day moving averages.
 
Motilal Oswal noted that the bank posted a strong recovery in business trends, despite a challenging environment amid the pandemic. Gross advances rose 12.1 per cent on a year-on-year (YoY) basis to Rs 1,40,000 crore and reported strong sequential growth of 4.6 per cent in 3QFY22 (v/s 3.4 per cent QoQ growth in 2QFY22). It said that the growth was led by healthy traction across all segments.
 
According to the report, Federal Bank’s total deposit base grew 8.5 per cent YoY (+2 per cent QoQ) to Rs 1,75,000 crore. Total customer deposits increased 8.7 per cent YoY (+1.1 per cent QoQ), while CASA deposits witnessed strong traction and rose 15 per cent YoY (+3.5 per cent QoQ).
 
Accordingly, the CASA ratio improved 52 basis points QoQ to 36.7 per cent  ̶  the highest level achieved by Federal Bank. Conversely, term deposit growth was broadly flat sequentially (-0.2 per cent QoQ).
 
The report noted that the liquidity coverage ratio (LCR) declined sharply to 154 per cent in 3QFY22 from 231 per cent in 2QFY22 indicating deployment of excess liquidity that the bank was carrying. CASA trends remained healthy, with the liability franchise holding up well for the bank. LCR ratio, though witnessed a sharp decline, is likely to have supported the loan growth.
 
“We expect an improvement in margin in 3QFY22, underpinned by a recovery in credit trends and lower cost of funds. We maintain our ‘BUY’ rating on the stock with a target price of Rs 130 (1.3x Sep’23E ABV for the core bank),” Motilal Oswal said.
 
Private sector lender Federal Bank reported nearly 55 per cent jump in its consolidated net profit at Rs 488 crore for the second quarter of this fiscal ended September 30. The bank had posted a net profit of Rs 315.70 crore in the year-ago period.
 
Total income (consolidated) during the July-September period of 2021-22, however, was down at Rs 4,013.46 crore, as against Rs 4,071.35 crore in the same period of 2020-21, Federal Bank said in a regulatory filing.
 
Ace investor Rakesh Jhunjhunwala held a 2.64 per cent stake or 5,47,21,060 shares in the bank at the end of the September quarter. Also, he has 1.01 per cent joint holding with his wife in the bank.