Two Midcap Banking & NBFC Stocks Hits 52-Week High, Buy For Potential Upside, Says ICICI Securities

L&T Finance Holdings - Potential Upside, Outlook, & Stock Performance

ICICI Securities has assigned a buy on L&T Finance Holdings with a target price of Rs 120/share to the stock. The stock purchased at the current market price could fetch 26% gains. It is an L&T Group's midcap NBFC having a market capitalisation of Rs 23,566.31 crore.

The stock of L&T Finance Holding last traded at Rs 95.25/share on BSE, gaining 0.11%. the stock recorded its 52 week high on 16 January 2022 at Rs 98.25/share. While its 52 week low is Rs 58.50/share recorded on 7 March 2022.

The stock surged 3.65% in the last 1 week, and 4.16% in the last 1 month, respectively. It has given 23.14% in the last 3 months and 35.97% in the last 6 months, respectively. In the last 1 year, it gave 18.91% positive returns. It has fallen 25.15% in the last 3 years, while in the past 5 years, it has given 45.15% negative return.

L&T Finance Holdings - Brokerage's Views

L&T Finance Holdings (LTFH) has reported adjusted consolidated PAT of Rs4.54bn in Q3FY23 (compared to Rs4.1bn/ Rs2.62bn/ Rs3.42bn/ Rs3.26bn/ Rs2.23bn/ Rs1.77bn in Q2FY23/ Q1FY23/ Q4FY22/ Q3FY22/ Q2FY22/ Q1FY22, respectively). Aligning to Lakshya 2026 goals, retail portfolio scaled up 10% QoQ/34% YoY and it has commenced accelerated reduction in wholesale portfolio (down 18% QoQ/24% YoY). This, coupled with improvement in NIMs + fee (8.8%), led to better than estimated core operating performance.

It reported capital gains of Rs26.1bn (pre-tax) from stake sale in L&T Investment Management. Nonetheless against this, LTFH created a one-time provision of Rs26.87bn (equivalent to 8% of wholesale book) to facilitate accelerated sell down of wholesale book. The management believes this provision adequately covers any downside risks of an accelerated sell down. It has also proposed the merger of its subsidiary lending entities - L&T Finance Ltd. and L&T Infra Credit Ltd. with itself, which is likely to result in a simple, unified structure.

The overhang of mark-down of wholesale portfolio was addressed with incremental provisioning. With focus on accelerated sell-down of wholesale portfolio, company is looking at ~90% of retail mix by FY24-end. Also it will accelerate Lakshya 2026 strategic initiatives of targeted RoA of 2.8-3.0%, gross stage-3 at <3%, net stage-3 at <1%, and 80% retail-dominated portfolio with >25% retail asset growth. "We believe consistent delivery and execution of Lakshya 2026 strategic plan, coupled with retail asset growth, could help it command a multiple of 1.25x on FY24E book value. Maintain BUY with a revised target price of Rs120. (earlier: Rs95 at 1.1x FY24E book value)," the brokerage has said.

Key risks: 1) Slower-than-anticipated execution of Lakshya 2026 plan; 2) any incremental cost attached with the downselling of real estate and wholesale portfolio.

Federal Bank -Potential Upside, Outlook, & Stock Performance

ICICI Securities has assigned a buy on Federal Bank with a target price of Rs 170/share to the stock with a Buy. According to the given target price, it could fetch gains up to 23%. It is a midcap private sector bank having a market capitalisation of Rs 29,133.60 crore.

The stock last traded at Rs 138/share on NSE, down 1.64% from the previous close. the stock recorded its 52 week high on 16 January 2022 at Rs 143.40/share. While its 52 week low is Rs 82.50/share recorded on 26 May 2022.

The stock surged 2.03% in the last one week, and 1.43% in the last 1 month, respectively. It has given 4.94% in the last 3 months and 39.75% in the last 6 months, respectively. In the last 1 year, it has given 38% positive returns. It gave 50.66% in the last 3 years. In the past 5 years, it has given 31.3% positive return.

Federal Bank - Brokerage's View

Multi-quarter high RoA/RoE at 1.3%/16% despite Rs0.5bn additional provision towards SR portfolio, sharp NIM expansion by >15bps QoQ, steady decline in net stressed asset portfolio to 1.8% summarise Federal Bank's strong financial performance during Q3FY23. This is an outcome of the management's successful execution of its new business strategy revolving around scaling up of high margin products like CV / CE, MFI, MSME and credit cards (put together contributes 21% of total loans), focus on profitable growth and derivation of synergies from fintech partnerships. Launch of digital personal loan with Paisa Bazzar for NTB customers and cross-sell of personal loans on Fi platform are steps taken in the right direction to reap benefits from fintech partnerships.

Broad-based recovery in credit growth (up 19% YoY), steady margin expansion and strong PCR @70% reinforce our view that earnings trajectory would continue to remain strong. While the bank was investing towards franchise build-up and new business lines, asset quality remained of utmost importance as reflected in stressed asset portfolio in Q3FY23 (net NPA + std. restructured book + net SR) declining to 1.78% vs 1.98% in Q2FY23. "Given the improving visibility on higher credit growth and sustainability of >1.2% RoA in FY23E/FY24E, we maintain BUY with revised target price of Rs170 (earlier: Rs155), valuing at PBV of 1.6x (1.5x earlier) on FY24E BVPS. We are not factoring value unlocking from subsidiaries," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of ICICI 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.