1. Federal Bank:
HDFC Securities maintains its ‘Buy’ rating on this bank with a target price of Rs 190. This implies an upside of 32.6%. In Q3FY24, the bank’s net profit grew by 25.3% YoY to Rs 1,006.7 crore. Analysts Krishnan ASV, Deepak Shinde, and Akshay Badlani attribute its highest-ever quarterly earnings in Q3FY24 to healthy loan growth (18% YoY) and non-core earnings from a stake sale in its subsidiary.
The analysts note a decline in the Federal Bank’s CASA ratio due to intense competition for low-cost deposits. They believe that the bank’s differentiated fintech ecosystem partnerships will gain market share in relatively high-yield segments and drive business productivity. They think the bank is highly likely to achieve the targeted RoA of 1.4% over FY24-25.
The bank’s Gross Non-Performing Assets (GNPA) ratio has been stable at 2.3%, with a healthy Provision Coverage Ratio of 70% in Q3FY24. As a result, the analysts have lowered their credit cost forecasts. They note, however, that ongoing investments in technology and branch expansion will increase operating costs in the medium term.
2. IIFL Finance:
Motilal Oswal gives a ‘Buy’ rating to this financial services company with a target price of Rs 800, indicating an upside of 24.7%. In Q3FY24, the company’s net profit grew by 29.6% YoY to Rs 490.4 crore, while its revenue increased by 23% YoY to Rs 2,694.4 crore. Analysts Abhijit Tibrewal, Gautam Rawtani and Nitin Aggarwal believe that the company’s net interest income improved by 45% YoY due to lower assignment and fee income. They say, “IIFL has morphed into a franchise with a robust distribution network, strong co-lending presence, and superior digital loan origination and underwriting capabilities.”
The analysts note that urban affordable housing growth in metro and tier-1 cities has been slow, but the management expects demand improvement over the next few quarters. Currently, IIFL Finance’s AUM stands at Rs 77,400 crore, up 34% YoY. The analysts believe that the company can effectively leverage fintech partnerships to deliver a 25% AUM CAGR over FY24-FY26. It is also projected to deliver RoE of over 20% in the medium term.
3. HDFC Bank:
KR Choskey maintains its ‘Buy’ rating on this bank with a target price of Rs 1,950, implying an upside of 35.1%. Post announcement of Q3FY24 earnings, the stock fell 8.4% on Wednesday. The bank's slower deposit growth (1.9% QoQ) and contraction in net interest margins (which dropped by 70 bps YoY) were major reasons. Analyst Unnati Jadhav says, “HDFC reported mixed performance growth in Q3FY24, with healthy operating performance and stable margins but moderation in deposit growth.” She notes that credit growth has outpaced deposits, leading to increased borrowings. She attributes the 60.9% YoY loan book growth to Rs 24 lakh crore to the retail and commercial & rural banking (CRB) segments.
There is some silver lining in the results, according to the analyst. Jadhav states that the strong performance in the CRB segment has been led by its deep rural penetration, as the bank now has a presence in 2,10,000 villages, as against 60,000 last year. HDFC Bank’s operating income grew by 25.8% YoY in Q3FY24, led by a 31% YoY increase in non-interest income. This growth, according to the analyst, contributed to an improved cost-to-income ratio. She expects a CAGR of 22.5% in net interest income and 25.3% in profit over FY24-26.
4. Ethos:
Axis Securities initiates a ‘Buy’ coverage on this specialty retail company with a target price of Rs 3,050, indicating an upside of 30.6%. Analysts Preeyam Tolia and Suhanee Shome say, “Our confidence in Ethos' future is grounded in the company's robust and consistent performance over the past several quarters.”
The analysts are optimistic about Ethos as it is foraying into the fast-growing certified pre-owned (CPO) segment due to the shortage of new luxury watches, with the Indian CPO market expected to reach Rs 900 crore by CY25. They view the asset-light CPO model with lower capex as a step in the right direction. They also believe Ethos' expansion into other fast-growing luxury segments such as luggage and jewellery could be its next growth driver.
Tolia and Shome expect the company’s EBITDA margin to improve on the back of a better product mix, store expansions, and operating leverage. They predict a robust CAGR of 35% in revenue and 42% in profit over FY24-26. They also note that the recent fundraising of Rs 175 crore through qualified institutional placement and a cash balance of Rs 180 crore as of H1FY24 provide a financial foundation for Ethos' expansion.
5. Biocon:
Sharekhan upgrades its rating on this biotech company to 'Buy' with a target price of Rs 332, indicating an upside of 22.9%. Analysts at Sharekhan say, "Biocon Biologics is improving its performance, led by the acquisition of Viatris and its successful integration into Biocon Biologics for 120 countries." However, they expect this operational performance to be offset by higher finance costs due to the debt incurred during the $1 billion Viatris deal.
The analysts see Biocon as well-placed to commercialise and realise the entire gains of its multiple products in the launch pipeline and the transition of Viatris. They foresee new customer additions driving volume growth, boosting the company's performance in European markets and increasing its global market share. With Biocon's debt having risen post the Viatris acquisition, analysts anticipate the company to divest its non-core assets to reduce these liabilities.
The analysts also express optimism regarding the robust opportunities in the biosimilars segment as some key global brands are set to lose patent exclusivity soon.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
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