3 Banking Stocks To Bet On In August From Angel Broking For Gains Of Up To 32%

1. Federal Bank: Buy for gains of 32%

Angel Broking is bullish on Federal Bank, an old generation private sector bank, for potential gains of 32%. The target price set out on the scrip is Rs. 110 while its last traded price is Rs. 83.3

Asset quality was managed well despite Covid second wave in Q1Fy22

The banker despite the second Covid wave has posted decent Q1FY 22 results with NI/ PPOP increasing by 9.4%/21.8% YoY. Provisioning for the period however went up by 22% YoY, impacting PAT, which declined 8.4% YoY. Asset quality somewhat saw a drag, nonetheless considering the acute Covid second wave, the banking entity held it well during the period under review. “We expect asset quality to improve from Q2FY22 given continued opening up of the economy. We expect the Federal bank to post NII/PPOP/PAT growth of 22.8%/23.7%/23.2% between FY20-23 and remain positive on the bank”, said the broking firm in its report.

Key financials

Y/E	NII	NIM	PAT	EPS	ABV	ROA	ROE	P/E	P/ABV
March	(` cr)	(%)	(` cr)	(`)	(`)	(%)	(%)	(x)	(x)
FY2022E	6604	3.1	2107	10.6	84.3	1	12.3	8	1
FY2023E	8612	3.4	2884.4	14.5	97.7	1.1	14.7	5.9	0.9

2. HDFC bank: Buy for 23% gains

Another stock pick from the banking space by Angel Broking is the country’s largest private sector banking entity, HDFC Bank. Angel Broking has given a price target of Rs. 1859, implying an upside of over 22% from the last traded price of around Rs. 1516.

Loan segment registered growth by 14% YoY pushing NII, PPOP and PAT higher for the Q1FY22 period

Asset quality at the bank suffered owing to the Covid second wave backdrop, nonetheless the bank logged growth in NII, PPOP and PAT of 8.6%/18.0%/16.1% for the quarter under review despite higher provisioning, helped by loan growth of over 14% YoY for the June ended quarter of FY22. NIM also saw a decline on a sequential basis owing to change in product mix and interest reversals. Furthermore, despite the loss of 35-40 days of collections, the management at the bank expects good recoveries from slippages in the second quarter that should probably cut down on credit costs going ahead.

“Given best in class asset quality and expected rebound in growth from Q2FY22 we are positive on the bank given reasonable valuations at 3.0xFY23 adjusted book which is at a discount to historical averages”, added the brokerage.

Financials

Y/E	NII	NIM	PAT	EPS	ABV	ROA	ROE	P/E	P/ABV
March	(` cr)	(%)	(` cr)	(`)	(%)	(x)	(x)	(x)	(x)
FY2022E	73930	4	36213	65.5	419	1.9	16.8	22.8	3.6
FY2023E	86972	4.1	43037	77.9	496	2	16.9	19.2	3

3. Shriram City Union Finance: Buy for 8% gains

Angel Broking has recommended a ‘Buy’ on the NBFC, Shriram City Union Finance that lends to small businesses, involving high margin. Furthermore, the firm extends auto, 2-wheeler, gold, and personal loans. Angel Broking expects the stock to hit a target of Rs. 2100 i.e. an 8% gain from the scrip’s last traded price.

Asset quality threw a positive surprise in Q1FY22, profits improved, provisioning went down during the quarter

Aided by an improved asset quality scenario, the company posted good quarterly numbers for the June ended quarter of FY22.. NII went higher by 5.23% YoY to Rs. 920 crore while PPOP was up by 0.4% YoY to Rs. 569 crores. Provisioning reduced by over 6% and hence profitability inched higher by 8% YoY.

“Shriram City Union reported a strong 30% sequential decline in disbursement for the quarter which led to flattish AUM at ~ Rs. 29,599 crore. The company reported only marginal deterioration on asset quality front as Gross stage 3 loans increased by 54bps qoq to 6.91% while net stage 3 for the quarter increased to 3.46% while PCR ratio stood at 49.9%”, noted the brokerage.

Financials

Y/E	NII	NIM	PAT	EPS	ABV	ROA	ROE	P/E	P/ABV
March	(` cr)	(%)	(` cr)	(`)	(%)	(x)	(x)	(x)	(x)
FY2022E	4312	12.1	1372	207.9	1320	3.8	15.6	8.7	1.4
FY2023E	5036	12.6	1730	262.2	1564.2	4.3	16.7	6.9	1.2

Disclaimer:

The above stocks are taken from the brokerage report of Angel Broking and need not be taken as investment advice. Equities are trading at record highs and you need to evaluate your own financial standing, risk profile,goals- both short term and long term, before taking any investment call.

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