Operating and financial leverage will continue to play through and nudge up RoAE to 23%-plus by FY21E. Leverage over 11x would likely drive a value-enhancing dilution by then, likely the first among many. The stock, trading at 5.5x FY20E P/BVPS, seems to be factoring this in. Maintain ‘BUY’ and our 12-month target price of INR880.
Our recent interaction with the top management of AUBANK, at their first analyst day, bolsters our constructive stance. Management’s intent to eventually convert into a full-fledged bank, via granular growth, was visible (AUBANK has to remain an SFB for at least ten more quarters). A book accretive fund raise is likely (though not immediately).Current asset quality trends are inspiring, amidst a bleak landscape. Increasing granularity will only help. Oplev (key to our anticipated RoAA expansion) has kicked in recently and is sustainable, in our view. Valuations are rich, but likely to persist so long as asset quality and growth hold up. Maintain BUY. Our SOTP-based TP is Rs 725 (4.75x Jun-21E ABV of Rs 148 + Rs 19/sh for AAVAS).
AUBANK is swiftly increasing its focus towards the high- yielding used vehicle segment and is capitalizing under-penetrated opportunities in the MSME segment, thereby sustaining healthy growth momentum. Further, the conservative underwriting approach, reduction in ticket sizes and lower LTVs should enable the bank to maintain strong control on credit costs. We expect AUBANK to deliver steady 43% earnings CAGR over FY19-21, aided by gradual improvement in operating leverage and margins. Maintain Buy with PT of INR760 (4.8x FY21E BV).
AUBANK has made strong progress on the business growth front, and alongside, has made adequate investments to support the growth momentum. We expect the bank to deliver steady progress in earnings/return ratios over FY19-21, aided by gradual improvement in operating leverage. We, thus, estimate ~43% earnings CAGR over FY19-21. Strong credit underwriting, diversified and a granular loan book coupled with a committed management should enable the stock to trade at premium valuations. We maintain Buy with PT of INR750 (4.7x FY21E BV).
Improved margins due to falling cost of funds (with increased share of deposits in external funds), along 21.9 with healthy loan book growth should act as a catalyst to spur the earnings growth of the company. The stock is currently trading at 3.6X P/ABV and 16.8X P/E of FY21E. We rate the stock a BUY, with a target price of INR 732, assigning a P/ABV of 4.2X of FY21E, with an upside of 18% from CMP.
AUBANKismakingstrongprogressinscalingupitsbusinessand alongside making adequate investments to support this momentum. We expect business growth to remain robust, while a gradual recovery in margins and cost- ratios will support earnings over the medium term. We revise up our PAT assumption by ~9%/6% for FY20/21, now estimating a PAT CAGR of 40% over FY19-21. Maintain Buy with an unchanged TP of INR720 (4.4x FY21E BV).
AUBANK’s scorching growth and near-flawless execution will keep valuations sustainably higher than peers. It holds the best of two worlds – NBFCs (high yielding, granular retail assets) and SFBs (rapidly expanding deposit franchise). Maintain BUY post the 4QFY19 beat. Our TP is Rs 680 (4.5x Mar-21E ABV of Rs 151). The bank’s demonstrable focus on growing both sides of the B/S continues to impress. With a large addressable opportunity, tepid competition from smaller NBFCs and sufficient capital, we expect growth to sustain. A reasonable fix on asset quality is an additional positive. Improvement in operating efficiency will be instrumental in driving RoAAs and is a key monitorable.