Sunday, January 9, 2011

Federal Bank - Buy

CMP (Rs): 374

52-week high (Rs)*: 501.0

Market cap (Rs crore): 6,770.5

% change from 52- week high *: -20.95

* Adjusted for corporate actions, split/Bonus. Current market price & market cap as on 23 Dec. Data Source: CMIE Prowess

FB is currently undertaking a restructuring exercise and has hired a dynamic new chairman and managing director. It is revamping internal processes to enhance productivity and maintain high credit standards. Post-crisis period, the bank has lagged in credit growth while asset quality has declined.

However, it is very high on capital adequacy due to a well-timed rights issue and has scope to grow its loan book without stress. And it is doing precisely this, as India revs up.

My rough take indicates, a strong credit growth at 24% over the next year, which will help push up its return on equities (a core monitorable for any bank) back into the mid-teens, even as asset quality stabilises. At a little over 1.1 times estimated FY12 book value, there is nothing to lose here.


Source ET

Our Recommendation:

After a recent spike to Rs.498 it is now correcting. Wait for declines to 350 levels and buy. The stock has a potential to go to Rs.500 levels where one can exit.

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