jhunjhunwala: What do the Q3 updates suggest about this Jhunjhunwala bank bet?

NEW DELHI: A stock in Rakesh Jhunjhunwala’s portfolio has been on investor radar after the lender released performance updates for the December quarter.

Brokerage Motilal Oswal Securities expects the private bank to report an improvement in its margin for the quarter, supported by a recovery in credit trends and a drop in the cost of funds.

Jhunjhunwala held 3.65% of the capital of Federal Bank as of September 30, 2021. His wife Rekha Jhunjuhunwala also held 1,58,560 shares or 0.01% of the capital of the bank at the end of the second quarter. The shares of the duo Jhunjhunwala held in the bank are worth Rs 650 crore on Tuesday.

The bank reported 12.1% growth in gross advances to 1.4 lakh crore year-on-year and strong sequential growth of 4.6% (vs. 3.4% QoQ growth in Q2FY22). The total deposit base increased 8.5% year-on-year and 2% sequentially to Rs 1.75 lakh crore. Total customer deposits increased 8.7% yoy (+ 1.1% qoq).

Analysts said growth was being driven by good traction across all segments, who said the private lender had shown a strong recovery in business trends, despite a tough environment amid the pandemic.

Motilal Oswal Securities has a buy rating on the stock with a target of Rs 130, valuing the script (1.3 times the September 2023 adjusted book value for the main bank). Nirmal Bang Institutional Equities has a target of Rs 124 on the script; Axis Securities and Antique Stock Broking finds the stock to be worth Rs 125. Kotak has a target of Rs 120 on the stock.

The script which traded at a low of Rs 82.60 on December 30 hit a high of Rs 88.90 on Tuesday.

“CASA’s trends have remained healthy as the liability franchise has held up well for the bank. The LCR ratio, although having declined sharply, has likely supported loan growth,” Motilal Oswal said.

CASA deposits jumped 15% year-on-year or 3.5% sequentially, while the CASA ratio improved 52 basis points QoQ to 36.7%, the highest level ever reached by the Federal Bank.

“The liquidity coverage ratio (LCR) fell sharply to 154% in Q3FY22 from 231% in T2FY22, indicating the deployment of excess liquidity that the bank was carrying,” said Motilal Oswal.

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