First, we have to compliment the organizers of the Sohn India conference for doing what no man has done before i.e. persuading eminent stock wizards to issue specific stock recommendations.
We saw earlier that Kenneth Andrade and Shankar Sharma, both of whom are loath to talk of specific stocks, issued specific stock recommendations and also provided detailed explanations on why their chosen stocks should do well.
Now, it is the turn of Akash Prakash, the whiz-kid founder of Amansa Capital, to issue a stock recommendation.
In the past, we have studied the portfolio and investment strategy of Amansa Capital. At that stage, the AUM was in excess of 4000 crore. Presently, the AUM may have crossed $1 Billion (Rs. 6,500 crore).
Federal Bank, the mid-cap Bank with a market capitalisation of Rs. 11,000 crore, is the crown jewel of Amansa Capital’s portfolio. As of 31st March 2016, the fund held a treasure trove of 7,38,16,854 shares of Federal Bank worth Rs. 472 crore.
|FEDERAL BANK LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||10,978|
|EPS – TTM||(Rs)||[*C]||2.83|
|LATEST DIVIDEND DATE||29 JUL 2016|
|BOOK VALUE / SHARE||(Rs)||[*C]||46.88|
[*C] Consolidated [*S] Standalone
|FEDERAL BANK LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2016||JUN 2015||% CHG|
(Source: Business Standard)
It is notable that Amansa Capital’s holding in Federal Bank is in excess of that of Billionaires MA Yusuffali (6,31,53,640 shares) and Rakesh Jhunjhunwala (2,70,71,060 shares) and second only to that of Warhol Limited (8,47,23,038 shares).
It is also worth recalling that in an earlier piece (Billionaires Rakesh Jhunjhunwala & MA Yusuffali Invest Big Bucks In Mid-Cap Bank Stock In Quest For Mega Gains) I had half-jokingly stated that “Billionaire stock investors have an instinct for sniffing out undervalued stocks with the potential for hefty gains”.
I was right in my supposition because since then (barely eight weeks ago), Federal Bank is up 26% which translates to an annualized yield of 169%.
In his presentation at the Sohn India conference, Akash Prakash has provided a systematic analysis of Federal Bank and why it is a great buy at present. The essence of his advice is that the severe problems being faced by the PSU Banks in terms of the surging NPAs, which has crippled their ability to lend further, provides a golden opportunity to well-capitalized private Banks like Federal Bank. He has also pointed out that the Bank has now got its act in order and made adequate provisions for its own NPAs. Also, the Bank has a clear-cut road map for aggressive growth, he adds.
Akash Prakash’s optimism for Federal Bank is shared by Sharekhan and Avinash Gorakshakar.
Sharekhan has recommended a buy with a target price of Rs. 74 on the following logic:
“Federal Bank has posted decent set of numbers during Q1FY2017 and the strong uptick in advances book is a positive sign. The liability franchise of the bank has seen continuous improvement, with the CASA ratio rising to 32.8% (up 36BPS QoQ and 156BPS YoY). This would help the bank to reduce its cost of funds. Although the overall asset quality picture seems to be improving post the RBI’s AQR in FY2016, few accounts from the restructured category would require close scrutiny. The stock currently trades at 1.1x FY2018E BV, which is attractive. We maintain our Buy rating on the stock with a revised priced target of Rs74.”
Avinash Gorakshakar echoed similar logic and opined that Federal Bank should be bought on every dip.
The logic formulated by Akash Prakash for Federal Bank applies equally to City Union Bank, which is also a private bank with excellent credentials.
City Union Bank has won the confidence of Brahmal Vasudevan’s Creador/ Latinia and this should itself put it firmly in orbit for more mega gains to its lucky shareholders!