AU Small Finance Bank hits record high; surges 35% in one month

Shares of AU Small Finance Bank (SFB) hit a record high of Rs 1,403, up 4 per cent on the BSE in Wednesday’s trade as it surpassed its previous high of Rs 1,389 hit on August 24, 2021. In the past one month, the private sector lender's stock has rallied 35 per cent, as compared to a 2 per cent gain in the S&P BSE Sensex.

In the past three days, AU SFB has gained 10 per cent after it posted a strong set of financial numbers for the quarter ended December 2021 (Q3FY22), with a 68 per cent year-on-year (YoY) growth in net profit at Rs 302 crore led by net interest income (NII) growth of 30 per cent on-year, and normalization in provisions.

In Q3FY22, disbursement at Rs 8,152 crore was the highest ever in a quarter – at a growth of 59 per cent QoQ and 33 per cent YoY. Asset under management (AUM) grew 26 per cent YoY to Rs 42,023 crore.

Asset quality improved further as GNPA was down 57 bps QoQ to 2.6 per cent from 3.2 per cent; Net NPA reduced to 1.3 per cent from 1.7 per cent sequentially. Recoveries were aided by improving environment and better customer cashflows resulting in collection efficiency sustaining above 100 per cent, the bank said.

Q3FY22 saw a near-normal operating environment with improvement across all key sectors aided by a strong festive season and resilient customer sentiment. Based on early impressions, the impact of Omicron variant seems limited, and the management remains optimistic with a cautious approach.

However, HDFC Securities maintains its REDUCE stance with a revised target price of Rs 1,127 (4.1x Sep-23 ABVPS) as the valuation continues to be demanding, leaving no room for any disappointment.

"We argue that AU Bank’s simultaneous investments in new growth engines such as credit cards, merchant acquiring, in addition to its BAU franchise-building efforts, are likely to be a drag on profitability. We highlight the fact that AU Bank’s historically-low LGDs, which were built on a highly-secured portfolio, may not sustain, given the rising pace of growth in its unsecured businesses," the brokerage said in its result update.

"We expect the bank to report healthy RoA/RoE of 1.9-2 per cent/17 per cent-21 per cent over FY22-24E, led by strong growth/margins and moderating LLP. However, we believe AU SFB runs a high growth-risk model, and thus should strengthen its risk/compliance architecture and sustain counter-cyclical buffers, more so in light of its planned transition toward a universal bank," said analysts at Emkay Global Financial Services. The brokerage retained 'Hold' rating with a target price of Rs 1,275 (valuing the bank at 4.5x Dec'23E ABV).