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Q2FY22 results of Federal Bank

According to the brokerage, the Net Interest Income (NII) of the bank was up 7.2% YoY and 4.3% QoQ, the strong traction in fee income (+30% YoY) and lower provisions (0.8% of loans) have helped the net profit growth of 50% YoY and 25% QoQ and the improved funding cost and steady asset yields with changing asset mix has aided the NIMs (up 5bps QoQ at 3.2%) of the bank.

The brokerage has said “The bank had to make higher provisions for the family pension scheme (amortized over five years with a total liability of Rs180 cr). CASA grew by 18% YoY and CASA Ratio came at an all-time high level of 36.16%. Overall deposits grew 10% YoY and 1.5% QoQ. Advances for the quarter grew by a 6 quarter high of 10%YoY and 3.4% QoQ. (Agri was up 20% YoY, business banking up 11.9% YoY, commercial banking up 11.6% and retail were up 11.6%). Gold Loans registered a growth of 25.88% to reach Rs.159.76 bn. Recovery from DHFL during the quarter aided the PAT.”

HDFC Securities has said “The management has guided for Rs.18-20 bn of slippages for FY22, which suggests that total slippage for H2FY22 will be same or lower than H1FY22 (Rs.6.40 bn in Q1+ Rs.3.2 bn Q2). Further recoveries and upgrades are expected to be Rs.3-3.5 bn per quarter for H2FY22.”

Buy Federal Bank with a target price of Rs 124

In its research report the brokerage has said “On the back of a granular wholesale portfolio and its secured retail franchise, Federal Bank has reported an impressive asset quality with slippages at 1.1% and steady early-stage delinquencies. NPA % is now at a 5 year low. We have envisaged 14% CAGR in Net Interest Income and 24% CAGR in net profit over FY21-FY24E. Further, we have estimated that the loan book would grow at 12.9% CAGR over this period. We expect asset quality and NIM to improve gradually over FY21-24E.”

“The management has guided for Rs.18-20 bn of slippages for FY22. Further, it has guided for a Cost to income ratio of 52-53% in FY22 and ~50% by FY23. For RoA, guidance of 1% is by FY22 and 1.25% over the next two years. Potential value unlocking in 74% subsidiary FedFina (balance 26% held by True North) adds to the margin of safety. Fedfina is focused exclusively on small ticket size credits; LAP, gold loans, and small business lending. Their lending book is now at Rs.51 bn (vs Rs.44.92 bn as of March 31, 2021) and they are expected to grow at 25-30% a year or more. The net profit of the Company grew by 48% to Rs. 586 mn for the year ended March 31, 2021 as against Rs.395.4 bn for the year ended March 31, 2020” said HDFC Securities.

The brokerage has clarified “We feel that investors can buy Federal bank at the LTP of Rs.101.1 (1.02x Sep-23E ABV) and add on dips to Rs.90.25 (0.91x Sep-23E ABV) band. We expect the Base case fair value of Rs.111.5 (1.12x Sep-23E ABV) and the Bull case fair value of Rs.124 (1.25x Sep-23E ABV) over the next 2 quarters.”

Disclaimer

The above stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Company’s performance

According to the brokerage “Consolidated revenue of ABFRL grew by 2x YoY to INR20.5b (7% beat), or 89% of preCOVID levels (2QFY20). Estimated LTL fell 11% as it saw limited store additions. TRENT clocked 25% YoY revenue growth, with a 46% addition in its area footprint.”

The gross margin of ABFRL improved significantly (590bp YoY) to 53.4% (~340bp above pre-COVID levels) on lower mark downs and a higher share of private labels. EBITDA came in 43% higher than our estimate at INR3.1b v/s an operating loss of INR76m in 2QFY21 (and INR3.3b in 2QFY20). Net profit stood at INR59m v/s an estimated loss of INR835m, according to the research report of the brokerage.

According to Motilal Oswal, “Net debt of ABFRL stood at INR8.7b v/s INR5.3b/INR12b as of FY21/1QFY22 end. The profitability and working capital unwind have reduced net debt QoQ. Lifestyle: Revenue grew by 2.2x YoY to INR11.5b (92% of pre-COVID levels), with EBITDA up by 3.3x YoY at INR2.1b. Pantaloons: Revenue grew 80% YoY to INR6.6b (27% below pre-COVID levels), with EBITDA at INR1.2b. Ethnic Wear: Revenue grew by ~5.8x YoY to INR0.6b, with an EBITDA of INR10m v/s an operating loss of INR70m QoQ and INR40m YoY.”

Buy Aditya Birla Fashion and Retail (ABFRL) at a price of Rs 350

According to Motilal Oswal, the management expects a strong and sustained recovery on the back of tailwinds from the festive season and opening up of the economy after the lifting of COVID-related restrictions. ABFRL witnessed a margin improvement on an improved share of Retail and private labels, lower mark downs, and cost control measures.

“We factor in a revenue/EBITDA CAGR of 7%/16% over FY20-23E and estimate Ind AS 116 EBITDA at INR7.3b in FY23E. ABFRL has consistently improved its earnings graph, with a revenue/EBITDA CAGR of 37%/75% over FY14-19. If FY20 growth is taken into consideration, revenue/EBITDA CAGR stands at 32%/55% over FY14-20 (FY20 pre-Ind AS 116 EBITDA of INR4.5b)” the brokerage has said.

Motilal Oswal has further clarified in its research report that “We value ABFRL on a SoTP basis, rolling forward our valuation to Sep’23E. We assign an EV/EBITDA of 16x/15x to Lifestyle/Pantaloons and 1x EV/sales to other businesses, slightly upping our multiple, given the quick recovery and improving Balance Sheet. We arrive at a TP of INR350/share (from INR280 earlier). We maintain our Buy rating.”

Disclaimer

The above stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Buy Gujarat State Petronet

Motilal Oswal Institutional Equities has set a price target of Rs 450 on the stock of Gujarat State Petronet as against the current market price of Rs 321.

“We expect spot LNG prices to return to normal levels post winter (i.e. end of FY22) as seasonal gas demand subsides, with supply constraints being resolved.

Reliance Industries has bought 8mmscmd (4.8mmscmd/3.2mmscmd in auction-II/III) of its own KG basin gas. Various companies (like GSPC, Essar Steel, and GSFC) have procured gas in two rounds of auctions. We believe substantial volume will flow to Gujarat and thus on the pipeline of Gujarat State,” the brokerage has said.

Reasons to buy the stock of Gujarat State Petronet

Motilal Oswal says that it reiterate its belief that volumes for Gujarat State would jump to 44mmscmd in FY23 as the company is also a beneficiary of: a) the upcoming LNG terminals in Gujarat, and b) increased demand due to focus on reducing industrial pollution (Gujarat has five geographical areas, or GAs, identified as severely/critically polluted), and c) commissioning of Mehsana-Bhatinda pipeline.

“The stock trades at 16x FY23E EPS and 10x FY23E EV/EBITDA. Investments in Gujarat Gas and Sabarmati Gas, at 25% holding discount, offer a valuation of Rs 307. Valuing the core at 7x (long term trough valuation) adjusted Dec’23E EPS of Rs 20.5 and adding the value of investments, we arrive at a target price of Rs 450 per share,” the brokerage has said.

Buy NOCIL, says Motilal Oswal

According to Motilal Oswal Financial Services the management guided that the priority would be to undertake debottlenecking at existing units in the near term, while long-term planning for the next 3-5 years is under evaluation. Specialized products form 25% of the total revenue, and any new capex announcement in this category would be both realization and margin accretive.

The brokerage has also recommended buying the stock of NOCIL. The firm has set a price target of Rs 320 on the stock, which is around 23% higher from current levels.

“The management continues to believe optimal capacity utilization for the expanded capacity (of 110ktpa) would be achieved by 1HFY24. Although, being conservative, we expect the same by end-FY24 (translating to a volume CAGR of 18%). Based on the aforementioned factors, we forecast a revenue/EPS CAGR of 26%/45% over FY21-24E,” the brokerage has said.

“Valuing the company at 22x Dec’23 EPS, we arrive at Target Price of INR320. We reiterate Buy, with a decent upside on the stock. A key risk to our call would be further margin suppression hereafter if tyre import restrictions are lifted,” the brokerage has said.

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal Institutional Equities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Markets saw solid gains on Monday led by good buying by domestic institutional investors. Here are a few stock ideas to buy and sell by technical analyst.

Manoj Dalmia, Founder and Director, Proficient Equities Private Limited

Usha Martin: Buy the stock at Rs 96.60, Sell at Rs 108, Stop Loss at Rs 92.40

Ravi Singhal, Vice chairman, GCL Securities Limited

Chola Fin: Buy the stock at Rs 638, Target Rs 670, Stop Loss Rs 629

Dr. Ravi Singh, Head of Research & Vice President, Share India

Bhel: Buy at Rs 214, Target Rs 222, Stop Loss Rs 211
Bharat Forge: Buy at Rs 817, Target Rs 838, Stop Loss Rs 810

Disclaimer

The above stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.