AU Small Finance Bank shares tanked over 5 per cent on Monday. The drop comes after the small finance bank’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. Despite the sharp correction, brokerages are bullish on the stock and expect over 20 per cent rally in the near term. “With an improvement in economic activity, the bank appears on track to deliver superior growth while retail deposit mix continues to improve supporting the margin profile,” said Motilal Oswal in its note. AU Small Finance Bank shares touched intraday low of 1,075, down 9.8 per cent on the Bombay Stock Exchange.
Stock Talk: Should you buy, hold or sell AU Small Finance Bank shares?
Motilal Oswal Financial Services: Buy
Target price: Rs 1,550
According to the domestic brokerage firm, the small finance bank has been reporting a strong operating performance and robust business growth while asset quality has been resilient amid a challenging economic environment. “Collection efficiency stands healthy at 106% and the bank carries contingent reserves of Rs 3b (75bp of loans), which provides further comfort. We estimate AUBANK to deliver ~35% earnings CAGR over FY22-24, while RoA/RoE improves to 2.1%/20.4% in FY24E,” it said. Motilal Oswal maintained BUY rating on the stock with a target price of Rs 1,550, implying 33% potential upside.
IIFL Securities: ADD
Target price: Rs 1,320
As a part of its second session of AU insights, AU Small Finance Bank made a detailed presentation on two of its oldest businesses Wheels and Housing Loans. The lender remains bullish on strong growth prospects in both segments with low penetration levels, increasing geographical presence and untapped opportunities in the existing markets as well. Thrust on digitalisation remains high to accelerate growth, improve efficiencies and risk management practices”, said IIFL Securities.
In the Wheels segment, the bank has presence across the product spectrum; however market share in states other than Rajasthan is low, indicating a long growth runway. Meanwhile, in the Housing Loan segment, growth would be driven by deeper penetration in existing geographies (8 states) and expansion into other states where the bank already has a presence (7 states). “Overall, we remain positive on the bank’s growth momentum going forward as well. Post recent correction and roll over of TP to FY24ii, we upgrade the recommendation to ADD,” said IIFL Securities.
Sharekhan: BUY
Target price: Rs 1,425
According to Sharekhan note, factors such as AU SFB’s long credit history and seasoned book are likely to support its asset quality and its superior return ratios and a long runway for growth are positives. “With provision cover, helped by its strong underwriting track record, provides a cushion on profitability. However, its premium valuation as compared to its peers remains a constraint in valuation expansion. Further, the rising crude oil prices and persistent supply side issues is likely to affect its vehicle loan book and overall book,” it said. With augmented capital, the bank is expected to move ahead to become a full-scale universal retail-focused bank adding to its products and features. The brokerage maintained a ‘Buy’ call on the stock with an unchanged target price of Rs 1,425.
Nirmal Bang: BUY
Target price: Rs 1,404
AU Small Finance Bank has been gaining market share in mobile transactions, implying improvement in customer engagement and addition. In line with the BFSI space, there has been an increase in TD rates for AU, reflecting the rising interest rate scenario. Overall, the lender is forecasted to deliver 26% AUM, 22% NII and 25% PAT CAGR over FY22E-24. The brokerage has upgraded the stock to BUY rating from Accumulate earlier and value it at 4.5x FY24E P/BV (unchanged) to arrive at the Target Price of Rs 1,404.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)
