Capital infusion, change in borrowing mix key triggers for AU Small Finance

Margins likely to come under pressure as bank will pass on benefits to borrowers, say analysts

The stock of AU Small Finance Bank (AU SFB) has surged about 20 per cent in the last six months, outperforming the BSE Bankex’s return of 8.4 per cent. The stock continues to trade at a premium valuation of over five times its FY20 estimated book value. Demand for the stock is on account of strong performance and robust earnings outlook, with recent triggers being the capital infusion and a change in its borrowing mix.
 
Temasek Holdings invested Rs 10 billion in the bank (30 per cent equity and 70 per cent convertible warrants) in May this year, and