Why are analysts gung ho on this small lender regardless of its deteriorating asset high quality


NEW DELHI: As extra small finance banks are eyeing listings on Dalal Avenue, the chief of the pack goes down in flames. Shares of (AUSFB), among the many high performers within the final monetary yr because the Jaipur-based lender’s itemizing in July 2017, have began to lose sheen within the present monetary yr to this point.

Amongst BSE 500 shares, AU Small Finance Financial institution is the worst-performing inventory of 2021-22 to this point, after

. It has tanked 22 per cent throughout this era.

Between March 2020 and March 2021, it had soared over 300 per cent.

The lender’s March quarter earnings have been a combined bag, with a deteriorating asset high quality owing to the next share of riskier segments and the resignation of its audit officer.

Additionally, contemporary slippages of loans surged to Rs 1,244 crore within the fourth quarter of final monetary yr. Gross non-performing belongings elevated to 4.Three per cent on the finish of March from 3.7% on the finish of December 2020.

“AU SFB’s This autumn FY21 efficiency was a combined bag with core working metrics trending higher than anticipated. The administration sounded assured in regards to the well being of the portfolio. AUM development although witnessed robust momentum in Q4FY21, however is more likely to average in H1 FY22E as a consequence of covid resurgence,” mentioned ICICI Securities.

The brokerage has assigned an ‘add’ ranking to the inventory, however lower its goal worth to Rs 1,140 from Rs 1,320.

Motilal Oswal has maintained a ‘purchase’ ranking on the counter contemplating the lender’s strong enterprise momentum. Nevertheless, it has cautioned over AU SFB’s deteriorating asset high quality and elevated credit score value within the close to time period.

The financial institution reported 38 per cent development in web revenue to Rs 168.98 crore for the quarter ended March 2021 from Rs 1,223 within the year-ago interval. Nevertheless, on a sequential foundation, it dipped 65 per cent in contrast with Rs 4,790 crore within the quarter ended on December 31.

The financial institution has posted wholesome 18 per cent development in web curiosity revenue (NII) whereas its non-interest revenue improved 51 per cent within the quarter ended March 31. Its web curiosity margin (NIM) eased to five.30 per cent within the quarter ended March from 5.50 per cent within the year-ago interval.

The lender’s mortgage e-book surged 22 per cent to Rs 37,712 crore by the top of March, and the CASA ratio moved as much as 23 per cent.

“Factoring the next credit score value and a decrease development in FY22 as a consequence of pandemic , our FY22/23 earnings estimates bear materials cuts. Given transient asset high quality challenges, an agile and responsive development mannequin and enticing structural story of the financial institution,” mentioned Sure Securities, which has an ‘add’ ranking on the lender with a goal worth of Rs 1,150.

Included as a car finance firm in 1996, AU Small Finance Financial institution remodeled right into a small finance financial institution in April 2017. The financial institution marks its presence in 15 states and a couple of Union Territories, with 729 branches, 341 ATMs, 31 asset facilities and about 6.6 lakh mortgage accounts.

Brokerage Chola Wealth can also be bullish on the counter. It mentioned that CASA development coupled with enhancing disbursement yields ought to help NIMs within the brief time period. Excessive provisions present consolation for stress within the e-book, it added.

“With CE at strong ranges and administration’s focus to strengthen the stability sheet, the financial institution is healthier positioned to deal with the present disaster. The inventory is at the moment buying and selling at 3.3x P/ABV of FY23E. Assigning a P/ABV of 4x for FY23E,” added Chola, which has a ‘purchase’ ranking on the inventory with a goal of Rs 1,143.

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