2 Banking Stocks To Buy With An Upside Target of 28%

Broking firm, Emkay Global is bullish on the stocks of Federal Bank and ICICI Bank, with a buy on the stock with an upside target of up to 28%. The price targets on the stocks can be achieved within the next 1-year, says the brokerage firm. "Markets will track global cues for further market direction while lot of stock specific action will be seen given the earnings season in progress. Overall, the result season so far has been healthy and is providing g support to the market which has shown strong resilience even though it faces headwinds from the advent of a possible third COVID wave and persistent inflation readings prompting a potential rate increase," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Buy Federal Bank, says Emkay Global

Emkay global has a arget price of Rs 110 on the stock of Federal Bank, as against the current market price of Rs 87. According to Emkay Global, covid stress for Federal Bank manifests in higher NPAs/restructuring in retail/SME. Overall gross non performing assets ratio rose by 10 basis points, qoq to 3.5% due to elevated slippages (Rs 6.9bn), mainly in Housing/LAP.

Fresh restructuring was higher at Rs 8.5 billion and thus the cumulative restructured pool shot up to to Rs 24bn/1.9% of loans, led by Retail (59%), SME (25%) and Gold (8%), the brokerage firm has said. According to it, the restructuring pipeline stands at Rs4bn/0.3% of loans.

"The bank has assured that it has not done restructuring to suppress NPAs and thus should see a lower relapse rate. Collection efficiency stood at 95% in Jun'21, up from 90% in Apr'21, and it should improve further in Jul'21. We are trimming FY22-24E earnings by 1-4% but expect the bank's RoA/RoE to improve gradually to 0.9-1.1%/11-13% over FY22-24E from 0.8%/10% in FY20. Maintain Buy with a revised price target of of Rs 110 (Rs 100 earlier), rolling forward to 1x Sep'23E ABV," Emkay Global has said.

Buy ICICI Bank with a upside target of 22%

Another banking stock that Emkay Global has set a higher price target is the stock of ICICI Bank. The firm has set a price target of Rs 825 on the stock, as against the current market price of Rs 683.

"Overall credit growth has been far better (+17% yoy) than the system as well as close peers (HDFC Bank at 14% yoy) on continued strong traction in Retail loans (up 20% yoy) and Business Banking/SME loans. Retail growth has been mainly driven by relatively resilient mortgages, and should see acceleration in the auto, cards and PL businesses as the economy opens up. The bank has gained market share in cards - 18% vs. 13% in spends and 17.4% vs. 15.8% in CIF. It now has a full digi-stack (Retail/SME/Corporate) after the launch of the corporate stack. This should help the bank capture the respective ecosystems and derive better revenue share, in our view," the brokerage has said.

"ICICI Bank remains our top pick in the sector. Retain Buy with a revised target price of Rs 825 (2.5x Sep'23E ABV + subs value of Rs170), given its solid growth trajectory, superior core profitability, healthy capital/provision buffers, and management credibility/stability," the brokerage has said.

Disclaimer

The above 2 stock are taken from the brokerage report of Emkay Global Financial Services. Investing in stocks is risky and investors need to be cautious. Neither Greynium Information Technologies Pvt Ltd nor the author nor the brokerage firm, would be responsible for any losses incurred based on decisions made from the article. Investors are also advised caution as the markets are now at a record high. Please consult a professional advisor and avoid investing lumpsum amounts.