- The two banks are multi-baggers and have risen by more than 3-4 folds in less than three years — making many investors rich. When the first nationwide lockdown came into effect due to the pandemic, both Federal Bank and Karur Vysya Bank took a massive hit — making them cheaper on stock exchanges.
Federal Bank and Karur Vysya Bank are among the hot picks of stock brokerage Emkay Global as they have set a ‘Buy’ rating on the two stocks. The two banks are multi-baggers and have risen by more than 3-4 folds in less than three years — making many investors rich. When the first nationwide lockdown came into effect due to the pandemic, both Federal Bank and Karur Vysya Bank took a massive hit — making them cheaper on stock exchanges. Late Rakesh Jhunjhunwala was among the major shareholders in the two stocks. His estate including shares and property is passed on to his family. Rakesh died on August 12, 2022. Federal and Karur Vysya Bank is still in the Jhunjhunwala portfolio. In the second quarter of FY23, both shares have given double-digit returns.
Federal Bank is a midcap stock, while Karur Vysya Bank is a small-cap.
On Tuesday, Federal Bank closed at ₹120.80 apiece up by 3.78%. While Karur Vysya Bank ended at ₹80.85 apiece higher by 2.54% on BSE.
On BSE, Federal Bank’s market cap is around ₹25,471.40 crore, while Karur Vysya’s valuation is about ₹6,469.11 crore.
Both stocks have made significant upside since the first lockdown which came into effect from March 25, 2020.
The late market mogul held Federal Bank since March 2016, while he added Karur Vysya Bank shares in December 2015. Jhunjhunwala had made key buying and selling in the two stocks over the past years.
From 2016 to date, Federal Bank’s lowest level is ₹35.70 which was recorded on March 25, 2020, aka the first day of the nationwide lockdown due to Coronavirus. Since March 25 lows, the shares have skyrocketed by more than 238% to date. Investors’ wealth has increased by over 3-folds in Federal Bank shares in less than 3 years.
On the other hand, from 2015 to date, Karur Vysya Bank’s lowest level was ₹18.15 apiece witnessed on March 27, 2020, just two days later in the first nationwide lockdown. Since March 27 lows, Karur Vysya shares have soared by a breathtaking 345.5%. Investors’ wealth here has climbed by at least 4.5 times in less than 3 years.
In the July to September 2022 quarter, Federal Bank shares jumped by over 31%. Whereas Karur Vysya Bank shares have surged by at least 81.5%.
As of June 30, 2022, according to the shareholding pattern on BSE, Rakesh Jhunjhunwala’s shareholding stood at 3,59,83,516 equity shares or 4.50% in Karur Vysya Bank.
Meanwhile, as of June 30, 2022, Rakesh and his wife Rekha Jhunjhunwala’s shareholding cumulatively stood at 54,721,060 equity shares or 2.6% in Federal Bank.
As per Trendyne data, as of now, Jhunjhunwala’s holdings are valued at over ₹915 crore in Federal Bank and at more than ₹291 crore in Karur Vysya Bank.
Should you buy these two banks’ stocks?
Federal Bank has announced its provisional performance for Q2FY3. The bank posted a total deposit of ₹1,89,146 crore in Q2 of FY23 rising by 10% yoy, while gross advances climbed by 19.4% yoy to ₹1,63,956 crore in the quarter.
In their latest note, Emkay Global analysts on Federal Bank said, “We believe that retail credit acceleration is mainly driven by mortgages, followed by gold and auto loans. Factoring in the strong growth momentum for the industry and the bank, we revise our credit growth for Federal Bank to 18% in FY23E from 16%.”
On deposits, the analysts note said, “We believe better LDR coupled with higher retail growth and healthy CASA should help the bank on the margin front.”
Further, the note said, “Bank’s Q1 performance on the treasury front too was outstanding, and should endure, with G-Sec yields largely remaining flat in Q2.”
On the valuation, the analysts report said, ” Equipped with a healthy liability profile and strong retail product basket, the bank is continuously paddling for better credit growth. Thus, factoring-in better growth, we revise our earnings estimate for FY22-25E by 3-6%. The bank previously struggled to cross the 1% RoA mark, but now seems to be well positioned to deliver +1% RoA on the back of improving growth/margin trajectory, moderating opex and credit cost. We retain BUY on FB, with a revised TP of Rs147 (vs Rs142), given the improving RoA trajectory, management stability, and strong digital adoption among small-/mid-cap banks. Potential value unwinding in its NBFC subsidiary (FedFina) via an IPO could be an additional catalyst for the stock and also shore up receding capital levels.”
Karur Vysya Bank:
On the bank, Emkay Global’s analysts in a separate note said, “We expect NPAs for KVB to trend down in the current quarter (in line with most banks’), led by controlled slippages and better collection trends. The bank expects slippage ratio to be contained at 1-1.5% in FY23 which, coupled with healthy PCR of 65%, should lead to moderation in LLP, thus driving up RoA beyond 1% on a sustainable basis.”
“With asset quality stress and concerns around management stability/credibility now largely behind, we believe KVB is on course to regain its mojo (led by accelerated growth) and reclaim the >1% RoA. KVB, traditionally has had a higher CI ratio (at 53-60%), mainly due to higher operational spend, including staff cost, which we believe will gradually moderate to <50% due to improved income and a steady decline in staff cost,” the analysts note said.
Also, the note said, “This, coupled with the best capital position (Tier I at >17%) among peers and attractive valuations (0.7x FY24E ABV), despite the recent run-up, makes KVB the most attractive pick among small-cap banks.”
Thereby, Emkay’s analysts note said, “We retain BUY on the stock with TP of Rs95, valuing the bank at 0.8x Sep-24ABV; better than expected delivery on growth/asset quality could further, drive up valuations.”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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