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Midcap watch: From Jhunjhunwala to 151 fund schemes & FIIs, all running after this lender

Some 15 analysts had ‘buy’ call on the stock while nine had ‘outperform’ rating for it.

Updated: Jan 24, 2019, 02.54 PM IST
If shareholding by institutional investors or Dalal Street biggies influence your stock picking, then you may already have been zeroing in on Federal Bank.

As many as 151 schemes of 32 asset management companies held this midcap private sector lender in their portfolio as of December 31, 2018.

Big bull Rakesh Jhunjhunwala, as well as many foreign portfolio investors, also raised stakes in the bank during the quarter gone by.

Federal Bank posted 28.3 per cent jump in third quarter profit as higher interest income helped offset the impact of higher provisions. Net profit stood at Rs 334 crore for the three months ending December 31 compared with Rs 260 crore a year earlier. Provisions stood at Rs 190.12 crore in Q3FY19 against Rs 162.43 crore in Q3FY18.

Some 15 analysts had ‘buy’ call on the stock while nine had ‘outperform’ rating for it on Reuters as of January 22. Six others had ‘hold’ ratings.

Jhunjhunwala’s Rare Enterprises held some 2,27,50,000 shares, or 1.16 per cent stake, in the bank as on December 31, 2018, while he himself held 4,47,21,060 shares, or 2.29 per cent stake. Together, his holding rose to 3.45 per cent at the end of December quarter from 1.74 per cent at the end of the previous quarter.

Centrum Broking recently retained its ‘buy’ rating on the stock with a target price of Rs 135. The scrip closed at Rs 88 on January 23.

“The Q3FY19 earnings reinforced the bank’s focus on pan-India expansion. Credit momentum has been intact, driven by network-II corporates and the retail/agriculture segments. Though operating costs saw a rise due to pension provisions, robust fee income growth led to healthy operating profit. Kerala flood-related effect primarily drove overall slippages, although total stress declined sequentially,” Centrum said.

The brokerage expects return on assets (RoA) and return on equity (RoE) to reach 1.1 per cent and 12.70 per cent, respectively, by March 2021. Valuations look attractive, Centrum said.

Among the fund houses, ICICI Prudential, HDFC Asset Management Company, Reliance Nippon, Aditya Birla Sun Life AMC, UTI Asset Management, SBI Funds Management, Tata Asset Management, Kotak Mahindra AMC, DSP Investment Managers and Mirae Asset Global Investment Management were among the top fund houses that held over 1 crore share of the private sector lender as on December 31.

Edelweiss Securities has just increased its price target for the stock to Rs 121 from Rs 118 earlier.

“Federal Bank is well placed due to upfront stress recognition and structural growth levers (adequate capital, lower competition). Q3FY19 reinforces our view that the bank is on course to deliver RoA and RoE of 1 per cent and 14 per cent, respectively, by FY21E. However, quarterly consistency will be crucial. Despite the post-result run up, the stock is trading at 1.3 times FY20E Price/Adjusted book value,” the brokerage said.

“Bank’s ROA improvement delta lies in NIM recovery and lowering opex/assets which restricts our trading multiples to 1.5 times despite strong loan growth, improving fees and stable liability franchise,” brokerage Prabhudas Lilladher said in a note in which it gave a ‘buy’ rating on the stock with an unchanged price target of Rs 102.

Foreign portfolio investors (FPI) raised their stake in Federal Bank to 37.34 per cent in Q3 from 36.17 per cent at the end of the preceding quarter.

Shares of the company underperformed the benchmark BSE Sensex as well as the banking index in last one year. The scrip slipped nearly 13 per cent, whereas BSE Bankex inched up 0.50 per cent during this period. The BSE Sensex gained 2.20 per cent between January 21, 2018 and January 21, 2019.

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