Brokerage house Axis Securities has maintained its bullish stance on the private sector lender Federal Bank, a part of Big Bull's portfolio, after the company posted its earnings for the quarter ended December 2021.
The stock closed 4.33 per cent higher at Rs 100 against the previous close of Rs 95.85 on BSE. It has been gaining for the last two trading sessions and has risen 9 per cent during the same period.
With a market capitalisation of more than Rs 21,000 crore, the shares stand higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages. On Tuesday, Federal Bank posted a 29 per cent jump in net profit at Rs 522 crore for the third quarter ended December 2021. Profit in the year-ago period stood at Rs 404.10. The Net Interest Income (NII) stood at Rs 1,538.90 crore in December 2021 up 7.09 per cent from Rs. 1437.04 crore in December 2020. Gross non-performing assets (NPAs) rose to 3.06 per cent of the total advances during the quarter, compared to 2.71 per cent at the end of the third quarter of 2020-21. Net NPAs of the bank also increased to 1.05 per cent of the total assets in October-December 2021, as against 0.60 per cent a year ago. Axis Securities noted that Federal Bank Q3FY22 performance was marked by lower provisions, improved recoveries and upgrades, pick-up in Net Interest Margin (NIM), healthy fee income, and loan growth. This led to profit after tax (PAT) growth of 29/13 per cent YoY/QoQ to Rs 521 crore aiding ROA expansion to 1 per cent. While restructuring is optically higher, 98 per cent of this book is secured with a collection efficiency of 96 per cent. NII growth has marginally slowed down to 7.1 per cent despite the NIM improvement. The slippage ratio of 1.3 per cent remains manageable, it said. The brokerage house highlighted that Federal Bank has been taking a cautious approach in building the loan mix toward high-rated corporates and retail loans. The bank’s liability franchise remains strong with CASA plus Retail TD of 90 per cent and one of the highest LCR amongst banks. It added that the bank has managed asset quality well despite the pandemic. Key positives are improved business mix, Adequate CAR, liability franchise and incremental lending to better-rated borrowers. New focus segments such as the MFI, CV portfolio, and credit cards will gradually aid in margin improvement though the management intends to take a calibrated approach in growing these segments. "We have revised loan growth estimates upwards and built-in lower credit costs over FY22-FY23E. We maintain a 'BUY' with a target price of Rs 125 (1.3x FY23E ABV)," the brokerage house added. 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.