Do you follow Rakesh Jhunjhunwala? Analysts gung-ho on his top financial bet post-Q4 results

Analysts maintained their bullish views on private sector lender Federal Bank after it posted 58% rise in net profit at Rs 477.81 crore for the quarter ended March 31. The bank had posted a net profit of Rs 301 crore in the same quarter of fiscal year 2019-20. The profit was higher sequentially also against Rs 404 crore in December 2020 quarter.

With an investment of over Rs 400 crore, ace stock investor Rakesh Jhunjhunwala is also one of the biggest individual shareholders in the bank. Overall, his investments in the stock market witnessed a rise of 88% to Rs 17,234 crore from Rs 9,168 crore in March 2020.

The total income of Federal Bank on a standalone basis, however, was down at Rs 3,832 crore in Q4FY21, as against Rs 4,108 crore in the corresponding quarter of FY20. On a consolidated basis, the net profit in the reported quarter jumped by 65% to Rs 500 crore. Income, however, fell by 5.4% to Rs 3,996 crore in Q4FY21, from Rs 4,223 crore in the year-ago quarter.

The gross non-performing assets (NPAs) of the lender deteriorated to 3.41 per cent of the gross advances by the end of March 2021, as against 2.84 per cent by the end of the same month a year ago.

Should you invest?

Commenting on the quarterly numbers, brokerage Sharekhan said that Federal Bank posted mixed results for Q4FY2021, largely in line with expectations on the operational front along with stable asset quality and margins despite challenging times.

“PAT performance was helped by lower provisions as the bank utilised its earlier-made Covid-related provisions. The bank had held a provision of Rs 536.69 crore as of December 2020 against the likely impact of Covid-19, including the Reserve Bank of India’s (RBI) mandated provision as per such guidelines,” Sharekhan said, adding that it has maintained ‘Buy’ on Federal Bank with an unchanged price target of Rs 95.

Brokerage views

Nirmal Bang Securities thinks that the bank is capable of delivering profit after tax growth of 35% and 18% over FY22E and FY23E, respectively. This would be largely driven by lower credit costs given that the provision coverage ratio (PCR) is now at a comfortable level of 66% for a portfolio with a loss given default (LGD) of less than 40%.

The brokerage has set a target price of Rs 112 for Federal Bank post Q4 results. “We take cognisance of the resurgence in Covid cases in last 1-2 months, which could create asset quality risks in the near-term. Net interest margin was up 13 basis points year-on-year and should improve going forward as the high-yielding retail portfolio is expected to grow at a higher rate coupled with downward re-pricing of deposits,” Nirmal Bang Securities said in a report.