Emkay Global Financial has given Hold recommendation for AU Small Finance bank with a target price of Rs. 1275 in its research report issued on Jan 04, 2022

Emkay Global Financial’s report on AU Small Finance bank

AU Small Finance Bank reported healthy overall AUM growth of 27% yoy/11% qoq in Q3FY22 (total loans AUM stood at ~Rs420bn), while advances were up 33% yoy/12% qoq to Rs407bn. Disbursements improved by 33% yoy/59% qoq to Rs81.5bn (including Rs0.5bn ECLGS vs. Rs0.9bn in Q2). We believe wheels, along with SBL and a good festive season, should have led to strong growth. Overall deposit growth too was strong at 49% yoy/13% qoq (total deposits stood at ~Rs443bn), while the CASA ratio shot up significantly to 39% (vs. 30% in Q2), inching closer to peers like Equitas/Bandhan. A better CASA ratio led to lower CoF – down 80bps yoy/20bps qoq to 5.9%. This should support margins and core profitability. Cumulative collection efficiency improved to 107% in Dec’21. However, asset quality will be the key monitorable, given possibly strict adherence to RBI norms on NPA upgrades. Any prolonged lockdown could cast a shadow on the bank’s asset quality, more so in its wheels (3W) and SBL portfolios. Unlike last year, the bank will not have one-off gains from the Aavas Fin stake sale, but we believe the bank should use healthy core profitability in Q3 to strengthen its provision cover, which advertently remains below 50%, raising investor concerns.

Outlook

The stock has corrected after the senior management exits in risk/audit functions, which are now more or less refilled with internal postings. Currently, we have a Hold rating, given the rich valuations (4.4x FY23E ABV and 3.7x FY24E ABV).

More Info on Trent

At 15:23 hrs AU Small Finance Bank was quoting at Rs 1,172.65, up Rs 78.00, or 7.13 percent.

It has touched an intraday high of Rs 1,228.00 and an intraday low of Rs 1,120.00.

It was trading with volumes of 246,309 shares, compared to its thirty day average of 45,382 shares, an increase of 442.75 percent.

In the previous trading session, the share closed up 2.86 percent or Rs 30.40 at Rs 1,094.65.

The share touched its 52-week high Rs 1,389.00 and 52-week low Rs 843.00 on 24 August, 2021 and 27 January, 2021, respectively.

Currently, it is trading 15.58 percent below its 52-week high and 39.1 percent above its 52-week low.

Market capitalisation stands at Rs 36,794.17 crore.

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