Federal Bank share: Zerodha, Jhunjhunwala may gain as stock analysts hike target prices

Federal Bank Ltd, which has Rekha Jhunjhunwala and Zerodha Broking, among shareholders, has attracted higher price targets from brokerages following the private lender's proposed preferential warrants to Blackstone.

Blackstone's Asia II Topco XIII Pte Ltd would be investing Rs 6,196.51 crore or $705 million in Federal Bank via 27,29,74,043 warrants issued on a preferential, private placement basis at Rs 227 apiece.These warrants are convertible into equity shares within a period of 18 months from the date of allotment. Post exercise of these warrants into equity shares, these will represent 9.99 per cent stake in the bank.

"We have estimated the warrants to be converted into equity shares by FY26 end, which will result in 11.1 per cent equity dilution and lead to an improvement of 280bps in the CAR to 18.5 per cent (from 15.7 per cent in September 2025)," Nirmal Bang said. The brokerage has upgraded Federal Bank from a ‘Hold’ to a ‘Buy’ with a revised target price of Rs 266 as against Rs 224 earlier.

Jhunjhunwala owned a 2.42 per cent stake, while Zerodha Broking held a 1.02 per cent stake in Federal Bank as of September 30. A total of 47 mutual funds collectively held a 37.52 per cent stake in the private lender. Insurers owned 9.25 per cent, while foreign investors held 25.54 per cent.

Prior to this week, the stock's normalised price was Rs 210, suggesting valuation of 1.2 times on September 2027 adjusted book value.

"Our FY27/28E ABV was Rs 163/Rs 184 suggesting a pre-money valuation of 1.4 times/1.2 times. Transaction price of Rs 227 would translate to higher post-money valuation of 1.3 times, indicating that this raise would be BV accretive. On a post-money basis, assuming money is invested in 2 separate tranches i.e. 25 per cent in Q1FY27 and 75 per cent in H1FY28, accretion to FY27/28E ABV would be 4.1 per cent and 2.7 per cent," PL Capital said.

Due to capital raise, NIM for FY27 and FY28 may increase 2-3bps to 3.10 per cent and 3.13 per cent, respectively. This brokerage upped its target to Rs 250 from Rs 235 earlier.

"We reiterate Buy with a revised target price of Rs 260, valuing the bank at 1.5x FY27E BV, factoring in enhanced capital strength, a steady earnings outlook and the sector-wide rerating potential from rising strategic foreign ownership in mid-size private banks," MOFSL said.