AU Small Finance Bank – A strong growth potential stock

Au Small Finance Bank Ltd., incorporated in the year 1996, is a banking company (having a market cap of Rs 17113.02 Crore).

Au Small Finance Bank Ltd. key Products/Revenue Segments include Interest & Discount on Advances & Bills which contributed Rs 2348.01 Crore to Sales Value (79.62 % of Total Sales), Interest which contributed Rs 280.66 Crore to Sales Value (9.51 % of Total Sales) and Income From Investment which contributed Rs 274.09 Crore to Sales Value (9.29 % of Total Sales)for the year ending 31-Mar-2019.

The Bank has reported a Gross Non Performing Assets (Gross NPAs) of Rs 457.78 Crore (.00 % of total assets) and Net Non-Performing Assets (Net NPAs) of Rs 217.30 Crore (.00% of total assets).

For the quarter ended 31-03-2020, the company has reported a Standalone Interest Income of Rs 952.72 Crore, up 7.87 % from last quarter Interest Income of Rs 883.25 Crore and up 34.37 % from last year same quarter Interest Income of Rs 709.03 Crore. The bank has reported net profit after tax of Rs 122.32 Crore in latest quarter.

 

The Key points:

F   AU SFB’s Loan AUM increased by 37.2% YoY (7.1 % QoQ) to ₹ 298.7 bn with a major contribution coming from the Retail segment, which increased by 45.8% YoY. The Retail segment was primarily driven by a 11.5 times YoY increase in Housing loans, coupled with wheels and SBL-MSME segment which too supported retail asset growth by 32.7% YoY and 51.2% YoY, respectively.

·   More than 95% Secured Book, a key factor in maintaining contained credit cost.

·  AUBANK has built a strong presence across three lending segments – vehicle loans, MSME loans and SME loans. It has always focused on secured lending, which has enabled it to maintain strong control on asset quality across economic cycles. Unlike most other NBFCs that have received the SFB license, AUBANK does not have any exposure to the micro-finance segment or to unsecured personal loans. Given the collateralized nature of lending (~99% of loans are secured) AUBANK is able to maintain a strong control on its loss ratios in the event of a default.

 

 First 10 quarters of Bank – Building a Technology Led, Retail, Secured, Granular and Diversified Franchise:

• More than 14.50 lakh customers

• Loan AUM grew 38% y-o-y to INR 27,876 Crore and Deposits grew 72% y-o-y to INR 22,149 Crore

• 79% retail loan proportion; more than 95% secured; ~5 lakh avg. ticket size for retail loans

• Focus on Retail Term Deposits and CASA; Currently at 42% of Total Deposits.

Share holding pattern of the Company is as below. Foreign institutions have invested more than  28% of its stake. 

Category	No. of shares	Percentage
Promoters	94,118,392	30.95
Foreign Institutions	87,248,957	28.69
NBFC and Mutual Funds	33,647,831	11.06
Others	49,457,167	16.26
General Public	26,388,048	8.68
Financial Institutions	13,262,932	4.36

Conclusion : 

Overall AU Small Finance Bank has reported strong growth numbers in an environment where other banks are struggling to continue their day to day operations. On the top of that the bank has maintained strong liquidity surplus of Rs 49 Billion and also has LCR of 137% which indicates a comfortable liquidity position of the bank. Also, when banks such as Indusind Bank, RBL Bank etc have been seen large flux of withdrawal of deposits total deposits of AU Bank grew 34.7 per cent YoY/9.6 per cent QoQ to Rs 261.6 billion which shows more faith of the people.

With majority of loan book spread across Retail segment, in the current economy downturn the bank may take a hit in terms of spike in NPA’s , Provisioning , Profitability etc but we believe the bank is well placed to absorb that shock and growth significantly once the economy starts to recover thereby earnings getting to normalised levels faster than compared to its peers.

Recommendations:

The stock is presently trading at first retrenchment of 23.6 % of Fibonacci after downfall during march due to pandemic. Today (24.6.2020) the CMP is Rs 562.70 and expected to reach Rs 790/- within three months with the expected returns of 50%.

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