The Hindu Business Line : Federal Bank rises on due diligence talk

The counter, which was ruling at around Rs 265 levels as on March 8, 2004, has since than appreciated by around 33.58 per cent to its current levels of Rs 354.

While the on-again, off-again rumour about a possible stake sale by ICICI Bank or a probable merger with it has kept interest alive and kicking at this counter, talk of the bank coming out with a rights issue before the second half of the 2004-05 has also proved to be a real shot in the arm for its stock price.

According to market sources, the stock, which had come in for a re-rating at around Rs 95 levels as on April 2003, is once again being re-evaluated by the market.

The stock was ruling around Rs 165 levels as on October 2003, has since appreciated by 114.5 per cent to its current levels.

However, when contacted, Mr K.P. Padmakumar, Chairman of Federal Bank, told Business Line no due diligence by any corporate had been conducted currently.

Dispelling the stake sale rumours, he said that the synergy between the two has only added value to their respective portfolios.

"ICICI Bank has assured us that they will stay invested. At the same time, they have also indicated that they would not be increasing their stake in our bank. A merger is definitely not on the horizon."

On the possibility of the bank going in for a rights issue, Mr Padmakumar said that there was no need for the bank to increase capital at the moment.

"We are looking at an asset growth of 23-25 per cent. This can be leveraged by a CAR of 12.7 per cent plus profit accumulation as we go forward. However, if asset growth takes place higher and faster than expected, we may have to go in for a rights issue.''

Meanwhile, market interest in the stock continues to run high with analysts of the opinion that Federal Bank is still available at a discount to its intrinsic worth.

"Federal Bank is uniquely placed with continuously expanding margins in spite of cutthroat competition in the lending business. Keeping in mind its soaring net interest margins, adequately covered NPAs, sophisticated technological platform and unique business model, it should not have any problem in sustaining a 25 per cent and 30 per cent CAGR in its topline and bottomline respectively till 2006-07,'' said Mr Arun Khurana, senior analyst with Prabhudas Lilladher.

According to Mr Punit Srivastava, of Enam Securities, the bank's fundamentals have shown a remarkable improvement over the past one year.

Mr Khurana said that Federal Bank is available at marginally higher than adjusted book value of 2004-05 whereas other leading banks are available at 50 per cent or more of their estimated 2004-05 adjusted book value.

The stock ended the day at Rs 354.20, with around 1.19 lakh shares traded on the BSE. On the NSE, it ended at Rs 354.50 with around 3.71 lakh shares traded.

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