Shares of AU Small Finance Bank fell 2.06 percent to close at Rs 773.70 on BSE on July 27, mainly on account of profit-booking after brokerages came out with mixed views on the stock post its June quarter results.
The bank, on July 23, reported a 6 percent rise in its net profit at Rs 201 crore in the April-June quarter of the current fiscal year. The bank had posted a net profit of Rs 190 crore in the corresponding quarter a year ago.
Read more: AU Small Finance Bank Q1 net profit up 6% at Rs 201 crore
On July 24, the stock logged a gain of 4.39 percent on BSE. In fact, the stock had been logging gains since July 16 and after closing in the red today, it broke the winning streak of the last 7 consecutive sessions.
YES Securities has downgraded the stock to a 'reduce' from a 'buy' rating on the stock with a target price of Rs 700.
"We downgrade the stock from 'buy' to 'reduce' as the recent sharp rerating (trades at 4.6 times FY22 P/ABV) assumes a rather smooth sailing through the pandemic. Equity raising (not factored by us) could support price," YES Securities said.
"Though the management expects collections to further improve in July‐August, we believe delinquencies could spike as certain applications or occupations in the retail portfolio may take longer time to revive," it said.
On the other hand, Motilal Oswal Financial Services has a 'buy' rating on the stock with a target price of Rs 850, valuing the stock at 4.4 times FY22E BV.
"Steady decline in moratorium book, reduction in SMA numbers and improving collection trend has eased pressure on asset quality. While we remain watchful of the trends ahead as customer activation rate is still at 67 percent against 80 percent under normal circumstances, we expect collection trends to improve gradually as guided by the management," said Motilal Oswal.
The brokerage is of the view that the company's higher provision buffer (1 percent/10 percent of total loans /moratorium book) should provide comfort against higher slippages, given the secured nature of the book.
Motilal estimates the bank's loan growth to remain soft at 14 percent in FY21 (18 percent AUM growth), while credit cost may stay elevated at 2.2 percent in FY21E.
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