Buy AU Small Finance Bank, target price Rs 665: ICICI Securities

ICICI Securities has given a buy rating to AU Small Finance Bank with a target price of Rs 665. The share price moved up by 2.76 per cent from its previous close of Rs 543.50. The stock’s last traded price is 558.50.

According to the brokerage, AU Small Finance Bank (AU SFB), in FY20, completed 25 years of its journey as an institution and three years as an SFB. Amidst Covid-related disruption, tough operating environment and weak growth outlook, AU is rightly setting the tone of ‘quality over quantity’ says the brokerage and target-based approach will take a backseat in FY21E. However, being a young and agile institution, it is reinforcing its commitment to grow once the economy revives and touch Rs 1 trillion book size with a client base of over 10 million faster than peers.

Investment Rationale

The bank has seen more than 4 times balance sheet expansion in three years with improving deposit profile (retail TD & CASA contributing 43 per cent), superior NIMs and return metrics, and sustained asset quality. Customer base has expanded to over 1.7 million, with 0.5 million new customers added in FY20. Its footprint has been extended to 243 districts in India. It has a digitisation focus with more than 80 per cent transactions through alternate delivery channels. Products per customer at 1.3 times indicate enough growth potential while focus on used vehicle financing saw it corner over 6 per cent market share. It has exceeded outdoing regulatory requirements with more than 85 per cent (against required 75 per cent) PSL lending, 60 per cent (50 per cent) under Rs 2.5 million ticket-size loans and 31 per cent (25 per cent) rural branches.

Source: ICICI Securities


Financials


For the quarter ended March 31, 2020, the bank has reported standalone interest income of Rs 952.72 crore, up 7.87 per cent from last quarter interest income of Rs 883.25 crore and up 34.37 per cent 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 the latest quarter.

Promoter/FII Holdings

Promoters held 31 per cent stake in the company as of March 31, 2020, while FIIs held 28.7 per cent, DIIs 15.4 per cent and public & others 24.9 per cent.