A company is said to be ‘fundamentally strong’ if it portrays a certain set of characteristics such as strong and consistent growth in revenues & net profits, lower leverage ratios, and many more.
Listed below is one such fundamentally strong Private-sector Bank in which HDFC Securities sees a 30 percent upside:
Federal Bank Limited
With a market capitalization of Rs 35,733.31 crores, the stocks of Federal Bank Limited, a private-sector bank based in India, are currently trading at Rs 147.25, a flat movement as compared to the previous closing levels of Rs 147.10 apiece.
Digging into the recent quarterly financials of the Bank, the total income figures increased from Rs 6,091.08 crores during Q1FY23-24 to Rs 6,548.2 crores during Q2FY23-24. Moreover, the net profit figures showed a decent growth from Rs 891.74 crores to Rs 1,000.16 crores keeping the timeframe the same.
Coming onto the Bank-specific metrics, the net non-performing assets (NPAs) have consistently reduced in the past couple of years with the most recent movement being a fall from 0.96 percent during FY21-22 to 0.69 percent during FY22-23. In addition, the net interest margin (NIM) has marginally increased from 3.06 percent to 3.15 percent during the same time horizon.
According to the latest shareholding pattern data, the late Mr. Rakesh Jhunjhunwala, along with his wife Mrs. Rekha Jhunjhunwala, holds a stake in the private lender in their name. The former holds 2.45 crore shares, and, the latter holds around 4.82 crore shares in the Bank.
HDFC Securities, one of the well-known brokerages based in India, has given a ‘Buy’ recommendation for the stock with a target price of Rs 190 indicating a potential upside of approximately 30 percent as compared to the current price level.
The investment rationale for providing such a recommendation pertains to accelerating growth in high-yielding products, fintech partnerships, a well-geared pace to deliver consistent return ratios, and many more.
On an overall basis, the Bank is professionally managed thereby having zero Promoter holding. The Foreign Institutional Investors (FIIs) as well as the Public (retail) investors hold around 27 percent stake in the Bank.
Federal Bank Limited is a commercial bank based in India operating through a network of branches and ATMs. Generating a majority of revenue from Indian markets, the Bank’s business segments consist of treasury, derivatives trading, foreign exchange operations, retail banking, and other banking operations.
Written by Amit Madnani
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