Broker's call: AU Small Finance Bank (Buy)

Our Bureau | Updated on: Mar 11, 2022

Motilal Oswal

Target: ₹1,550

CMP: ₹1,192.50

We attended AUBANK’s virtual meet where the management highlighted how the improved digital capabilities are helping the bank transform by driving business growth, while delivering superior customer experience.

AU Small Finance Bank has divided its business into 10 SBUs, where each SBU will have its own structure/growth strategy underpinned by shared verticals and support functions. In today’s session, the bank dwelled upon its two critical SBU’s – Wheels and Home loans. The bank has been working on scaling up its digital banking across product range, which is aiding sustainable growth.

AUBANK has been reporting a strong operating performance and robust business growth while asset quality has been particularly resilient amid a challenging economic environment. With an improvement in economic activity (as reflected by key economic indicators – GST collections, GDP growth, and PMI), the bank appears on track to deliver superior growth while retail deposit mix continues to improve supporting the margin profile.

Collection efficiency stands healthy at 106 per cent and the bank carries contingent reserves of ₹300 crore (75 bps of loans), which provides further comfort. We estimate AUBANK to deliver about 35 per cent earnings CAGR over FY22-24, while RoA/RoE improves to 2.1 per cent/20.4 per cent in FY24.

Published on March 11, 2022
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