Top Pick 2023: This Banking Stock Gave Robust Performance In Q2FY23, Brokerage Assigns Buy Call

Stock outlook, Returns & Market capitalisation

The Current Market Price (CMP) of stock is Rs 137.65/share on NSE, 2.99% up as compared to its previous close. Its 52-week high, which was recorded on 15 December 2022 is Rs 142.20/share and its 52-week low, which was recorded on 20 December 2021 is Rs 80.60/share, respectively. It has a market capitalisation of Rs 28,954.81 crore. 
In the past 1 week, it surged by 7.58%, and in the past 1 month, it surged by 3.93%, respectively. Whereas, in the past 3 months, it surged by 21.81%. Over the past 1 year, it gave 56.07% positive return and in the past 3 years, it gave 56.07% positive return. In the past 5 years, it gave a 26.87% positive return.

Investment Rationale

Buoyant Credit Growth Prospects: FB's credit growth witnessed continued growth momentum and remained robust in Q2FY23 with advances growing at 19% YoY. The bank is also keenly focused on neo-banking tie-ups to reach the country's under-banked population and expects these partnerships to contribute meaningfully to the overall business growth moving forward. Thus, supported by a broad-based demand pick-up as well by the newer segments namely credit cards and personal loans along with ample growth headroom in the existing core products, we expect the bank to post healthy growth in its book at 18% CAGR over FY22-25E.

Strengthening Liability Franchise: FB has been amongst the few mid-tier banks that have consistently worked towards strengthening their deposit base. The bank has a granular deposit franchise with a healthy CASA Ratio of 36.4% and retail deposits forming ~93% of the total deposit base. The management remains confident of clocking a mid-teen growth in FY23 despite intense competition within the industry. Currently, ~10-12% of the incremental deposits are sourced from the Fintech partners and will continue to support the deposit growth of the bank.

Asset Quality Stress Well-managed: FB's performance in handling asset quality stress during COVID-19 has been at par with most of the frontline banks. Aided by healthy recoveries, the bank's asset quality improved in Q2FY23 by 78/23bps YoY/QoQ with GNPA at 2.5%. With slippages expected to moderate and the recovery pipeline being strong, FB is expected to witness improvement in its asset quality. The restructured book continues to behave well and currently stands at manageable levels of 2% of advances.

RoA Expansion Levers in Place: Improving credit growth prospects along with improving the share of higher-yielding newer products in the portfolio mix should collectively aid margins moving forward. Furthermore, improving margins coupled with well-managed asset quality stress translating into lower slippages and moderating credit costs should further support RoA expansion. The management has also revised its RoA guidance for FY23 upwards to 1.25% from 1.15% earlier. We expect FB to report RoA/RoE of 1.2/15% by FY25E vs. 0.9/10.8% in FY22.

Outlook & Valuation

Robust performance in Q2FY23: FB reported a stellar performance in Q2FY23 with the highlight has been the multi-year high RoA of 1.2%, which was led by healthy NIMs of 3.3% (multi-quarter high) and modest Opex growth with the C-I Ratio improving to sub-50%.

"We maintain our BUY recommendation and arrive at a TP of Rs 160/share, implying an upside of 20% from CMP," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.