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After underperforming the BSE Sensex and the Nifty50 for the last one year, AU Small Finance Bank has turned attractive for analysts once again.
The stock on Wednesday closed at ₹612.5, up 0.51 per cent. In the last one month, it surged 8.8 per cent against Sensex’s return of 2.33 per cent.
Besides impressive Q4 financial performance, analysts said, easing of liquidity concern for the NBFC sector following the dovish stance of the RBI has revived the sentiment for the stock.
“AU Bank’s scorching growth and near-flawless execution will keep valuations sustainably higher than peers,” said HDFC Securities, and added: “It holds the best of two worlds — NBFCs (high-yielding, granular retail assets) and small finance banks (rapidly expanding deposit franchise).
According to YES Securities, the bank’s performance in Q4 FY19 can be termed as strong, being characterised by RoA (return on asset) expansion, simultaneous scaling up, and strengthening of the franchise.
For the fourth quarter of FY19, the bank’s profit grew 42 per cent at ₹118 crore year-on-year and net interest margin surged 83 per cent (excluding securitisation and assignment income) to ₹851 crore. Besides, its assets under management and loan disbursements also saw healthy growth.
Recovery in margins to help
AU Bank is making strong progress in scaling up its business and 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,” said Motilal Oswal while maintaining its ‘buy’ with an unchanged price target of ₹720.
HDFC Securities, which retained its ‘buy’ rating with a price target of ₹680 said: “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.”
Narnolia Financial Advisors (formelry Microsec Capital) said with the higher base and recent slowdown in auto industry, AU Bank’s growth is likely to be impacted in the near term.
On the liability front, it has successfully scaled up its deposits and replaced the high-cost borrowings. Strong underwriting and effective supervision have kept the asset quality in check, both for retail and wholesale segments.
YES Securities, which has given a 24-month price target of ₹925, said: “With outlook on margins improving and asset quality staying strong, the near-term profitability will stay largely immune to franchise investments in the areas of branch and digital banking.”
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