One of Rakesh Jhunjhunwala’s all-time favourite stocks is Karur Vysya Bank. The Badshah never tires of talking about how he bought a truckload of the stock way back in 1993 and how it has enriched him enormously over the decades that have gone by.
The Badshah revealed in an ET interview the reasons he bought the stock and why he has held on to it for so long:
“… in Karur Vysya Bank, maybe, I think, I had invested 50 lakh in 1993, now I think it is 200 crore. I see now it is growing at 18-20 per cent. It has a good management, is rewarding shareholders, has a good yield. I think 400 is the price and 16 is the dividend. So four rupees, a four percent yield…. Banking will be 7-8 per cent of my portfolio”.
However, what most people are not aware of is that Federal Bank is also one of Rakesh Jhunjhunwala’s favourite stocks. In the same ET interview, the Badshah revealed that he has made substantial investments in Federal Bank and other banking stocks and that they constitute 7-8% of his portfolio.
Unfortunately, Federal Bank has not done well owing to its surging NPAs. On a YoY basis, the stock has lost 28% while it is nearly flat over the past two years.
However, the recent Q4FY16 results suggest that Federal Bank is getting its act in order and the surging NPAs may be a thing of the past.
Shyam Srinivasan, Federal Bank’s MD, explained that the slippages are under control and that the main focus in FY17 is on growth.
Federal Bank reports Q4 nos. Shyam Srinivasan, MD, Federal Bank takes us through the earnings. https://t.co/ejWv5tNPeW
— CNBC-TV18 News (@CNBCTV18News) May 2, 2016
Rakesh Jhunjhunwala is known to have a sixth sense that alerts him when the time is ripe to buy beaten down stocks. He appears to have sensed that Federal Bank is getting its act in order and that the time is opportune to aggressively increase his holding in the stock.
In the March 2016 Quarter, Rakesh Jhunjhunwala has increased his holding in Federal Bank to 270,71,060 shares. The investment is worth Rs. 130 crore at the CMP of Rs. 48.
Billionaire MA Yusuffali of the LuLu group of Dubai is a strong believer in the prospects of Federal Bank. He holds 6,31,53,640 shares worth Rs. 303 crore.
Interestingly, both Billionaires have to play second fiddle to Akash Prakash’s Amansa Capital which holds a treasure trove of 7,38,16,854 shares worth Rs. 354 crore.
A number of other investors and analysts are also warming up to Federal Bank’s prospects.
Porinju Veliyath, who is known to keep a keen eye for money-making opportunities, is also prowling around the Federal Bank counter, looking for a chance to grab the stock. He sent out a subtle hint that the stock is undervalued and could soar on the same multi-bagger trajectory as SKS Microfinance:
SKS Micro & Federal Bank quoting at same price (~Rs 8000 Cr.) is irrational, I feel.
— Porinju Veliyath (@porinju) May 4, 2016
Hatim Broachwala of Nirmal Bang opined that the stock has a target price of Rs. 67 which translates into a whopping upside of 45%. His logic is sound:
“Federal Bank revamped its top management. It has inducted a new executive director, Mr. Ganesh Sankaran (from HDFC Bank) and chief operating officer, Ms. Shalini Warrier, (also from Standard Chartered Bank). The change brought in by these new officials is already witnessed in healthy QoQ corporate credit growth …. The bank is well placed to take advantage of likely macro-economic recovery, being already better capitalised with its Tier-I capital ratio at 13.4%. ….. Better operating efficiency at branches set up recently is also expected to result in a significant improvement in overall operating efficiency.”
PL is also gung-ho about Federal Bank and has predicted a target price of Rs. 54, which is an upside of 17.4%.
However, not everyone is impressed by Federal Bank’s prospects. Motilal Oswal has lowered its estimates and maintained a neutral stance.
ICICI-Direct is also unimpressed by Federal Bank’s Q4FY16 results. The wizards there recommended a ‘Hold’ of the stock.
So, in the light of the sharp cleavage of expert opinion as to the prospects of Federal Bank, we will have to keep a watch on what happens at the counter and see whether the Billionaires do take home mega gains or not!