AU Bank rallies 24% in 6 days on strong Q3 update; stock hits 10-week high

Shares of AU Small Finance Bank (SFB) hit a 10-week high of Rs 1,289.55, up 4.5 per cent on the BSE in Tuesday’s intra-day trade. The stock of the private sector lender was trading at its highest level since October 28, 2021. It had hit a 52-week high of Rs 1,389 on August 24, 2021.

Thus far in the month of January, in the last six trading days, the market price of AU SFB has appreciated by 24 per cent after it reported a sequential growth of 10.6 per cent and yearly growth of 26.5 per cent in total assets under management (AUM) to Rs 42,027 crore in the October-December quarter (Q3FY22). In comparison, the S&P BSE Sensex was up 4 per cent so far in the current month.

"Q3FY22 was near-normal quarter for the Bank with strong growth seen in advances, disbursements and deposits across all businesses and customer segments supported by a good festive season. The customer cashflows continue to improve supporting recovery trends and asset quality in the quarter.", AU Small Finance said in its provisional business update on January 4, 2022.

On a gross advances basis, the bank witnessed a growth of 11.9 per cent QoQ (+33.4 per cent YoY). The bank saw a significant improvement in the overall business environment, which resulted in strong disbursements. In Q3FY22, disbursements were up 59 per cent QoQ (+33 per cent YoY) at Rs 8,152 crore. Disbursements included ECLGS of Rs 48 crore in Q3FY22. The bank is witnessing strong traction in the Credit Cards business.

Cumulative collection efficiency improved to 107 per cent in December 2021. 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, said Emkay Global Financial Services.

Unlike last year, the bank will not have one-off gains from the Aavas Financiers stake sale, but we believe the bank should use healthy core profitability in Q3 to strengthen its provision cover, which advertently remains below 50 per cent, raising investor concerns. The stock has corrected folowing senior management exits in risk/audit functions, which are now more or less refilled with internal postings, the brokerage firm said in a flash note, with a ‘hold’ rating on the stock.

AU Small Finance Bank also posted a robust growth in advances, led by strong disbursements, due to an overall improvement in the business environment. Deposit growth too remains strong, led by robust CASA growth, resulting in a further improvement in CASA ratio. On the asset quality front, collection efficiency remains strong (in excess of 100 per cent), which is likely to result in an improvement in asset quality ratios, providing further comfort, Motilal Financial Services said in an update.

However, in the past six months, the stock has underperformed the market with a gain of 7 per cent, as compared to a 16 per cent rally in the S&P BSE Sensex.