Among the sectors that are witnessing a severe backlash of the lockdown at the bourses are finance companies, with NBFCs and small finance bank (SFBs), facing the brunt. One such stock is AU Small Finance Bank, which was one of the best bets for most analysts until last year.

The stock on Tuesday fell 5 per cent, or ₹25.80, to ₹490.75 on the BSE. Following its result announcement on Monday, the stock fell from ₹564 to ₹516, thus taking the total fall to 15 per cent in the last two days.

Dream run

The SFB made a stellar debut in July 2017 after a highly successful IPO (subscribed almost 55 times). Against the IPO price of ₹358, AU SFB had a dream run, hitting an all-time high of ₹1,217 in early January this year. However, the lockdown triggered a huge fall in its share price, to a low of ₹443 last month.

Q4 show

AU SFB posted a 3.45 per cent increase in its net profit to ₹122.32 crore for the fourth quarter of FY20, against ₹118.23 crore in the previous-year period. Its net income grew 43 per cent to ₹738 crore (₹517 crore) while net interest income surged 43 per cent to ₹555 crore (₹387 crore).

Global investment advisor Nomura has downgraded the stock to neutral with a target price of ₹500. It expects assets under management to moderate to 10 per cent and 22 per cent by FY21 and FY22, respectively.

AU SFB’s earnings missed estimates, with PAT falling to ₹120 crore, mainly dragged by provisions of ₹138 crore toward Covid-19 and higher other operational expenditure, said Emkay Global. However, it maintained its Hold/UW (underweight), with a revised target price of ₹535 (earlier target ₹1,025 in January 2020), given its rich valuations. However, the stock's performance will largely track the bank's ability to manage liability and asset quality amid weak macros and Covid-19-induced business disruptions, it said.

Earnings estimates

Motilal Oswal Securities said its loan growth had moderated while deposits stood healthy. Margins were stable on a sequential basis despite excess liquidity build-up, with management suggesting spreads would improve further.

“We cut our earnings estimate for FY21/22 by 18 per cent/10 per cent as we factor in high credit cost and moderation in business growth,” it said. Though it maintained its ‘Buy’ rating on AU Small Finance Bank, it reduced the target price to ₹675. On April 6, Motilal Oswal had expected a target price of ₹800.

ICICI Securities said while the ongoing lockdown is likely to impact near-term growth and asset quality, AU’s diversified loan mix, strategic shift towards used vehicle financing, visible levers for margin expansion and experienced management team would help it achieve normalcy faster than peers. It maintained a ‘Buy’ with a revised target price of ₹665 (earlier: ₹1,330).

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