Analyst Corner | Maintain ‘add’ on AU SFB with target price of Rs 1,320


With improving visibility on growth, capital infusion of Rs 6.25bn and likely credit cost normalisation in FY22e (~40% coverage on proforma GNPL), we adjust our target multiple to ~5x FY23e (still ~35% lower than historical peak) and revise TP upwards to Rs 1,320 (earlier Rs 994). Maintain ADD.

At a time when most of AU Small Finance Bank’s peers are either grappling with lower collections or sounding cautious in growing balance sheet, it remains committed in utilising its strong operational performance to invest for future. Addition of ~186 banking touch-points and ~2,000 headcounts since March ’20 during the most challenging times reflect AU’s unwavering focus on strengthening asset franchise. It delivered robust ~42% AUM CAGR between FY18-20 — highest within listed SFB space and added infrastructure would ensure sustainability of high growth over near term. Taking cognisance of improving collection (pre-Covid level in Dec ’20) and clarity on asset quality, it kick started pursuing growth Q3FY21 onwards — disbursed Rs 65bn, up 41% YoY and highest ever. With improving visibility on growth, capital infusion of Rs 6.25bn and likely credit cost normalisation in FY22e (~40% coverage on proforma GNPL), we adjust our target multiple to ~5x FY23e (still ~35% lower than historical peak) and revise TP upwards to Rs 1,320 (earlier Rs 994). Maintain ADD.

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Strong asset franchise should help in reviving growth faster than peers. AU’s market share in vehicle financing at ~1% in new vehicle & ~6% in used vehicle vs

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