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Jun 30, 2017 06:15 PM IST | Source:

AU Small Finance Bank IPO to open on June 28: Here is all you need to know

This will be the fifth and last public issue for the month of June, followed by CDSL, Tejas Networks, GTPL Hathway and Eris Lifesciences.

The initial public offering (IPO) of AU Small Finance Bank will open for subscription on June 28, with a price band of Rs 355-358 per share.

This will be the fifth and last public issue for the month of June, followed by CDSL, Tejas Networks, GTPL Hathway and Eris Lifesciences.

Bids can be made for a minimum of 41 equity shares and in multiples of 41 shares thereafter. The issue will close on June 30.

Equity shares are proposed to be listed on BSE and National Stock Exchange of India. ICICI Securities, HDFC Bank, Motilal Oswal Investment Advisors and Citigroup Global Markets India will act as book running lead managers for the issue.

Here are key points that one should know about the issue & company and also check out what brokerage houses say:-

About the issue

The public issue of AU Small Finance Bank is an offer for sale of 5,34,22,169 equity shares by promoters and investors.

Promotors and promoter group - Sanjay Agarwal, (to sell up to 24.94 lakh shares), Jyoti Agarwal (23.63 lakh shares), Shakuntala Agarwal (22.74 lakh shares), Chiranji Lal Agarwal (12.9 lakh shares) and MYS Holdings (5.76 lakh shares) will sell their stake through OFS.

Other than promoters, Redwood Investment (up to 1.48 crore shares), International Finance Corporation (75.72 lakh shares), Labh Investments (1.12 crore shares), Ourea Holdings (1.03 crore shares) and Kedaara Capital Alternative Investment Fund (4.34 lakh shares) will also offload their shares in the offer.

Offer includes a reservation of up to 10 lakh shares for subscription by eligible employees. The bidding for anchor investors' reserved portion will be opened for one day on June 27.

Objects of the issue

The objects of the offer are to achieve the benefits of listing equity shares on stock exchanges and for the offer for sale of 53,422,169 equity shares.

The company will not receive any proceeds from the offer. All proceeds from the offer will go to each of the selling shareholders, in proportion to its portion of the offered shares.

About the Company

AU Small Finance Bank is a small finance bank (SFB) that has recently transitioned from a prominent, retail focused non-banking finance company (NBFC).

It primarily served low and middle-income individuals and businesses that have limited or no access to formal banking and finance channels.

It received a license from the Reserve Bank of India to set up an SFB on December 20, 2016 and commenced SFB operations on April 19, 2017. Prior to such date, the company was categorised as a 'systemically important, non-deposit accepting asset finance company' (NBFC-ND-AFC) by the RBI.

The company commenced operations in 1996 in Jaipur, Rajasthan and was registered as an NBFC with the RBI in 2000. In 2005, it became a commercial associate of HDFC Bank for originating and servicing vehicle loans.

AU operates in three business lines - vehicle finance; micro, small and medium enterprises (MSME) loans; and small and medium enterprises (SME) loans.

For the financial year 2017, the average ticket size of vehicle finance loans was Rs 3.4 lakh, MSME loans Rs 10.8 lakh and SME loans Rs 2.19 crore. As of March 31, 2017, 98.99 percent of its total receivables under financing activity were secured.

In FY17, AU conducted operations through 301 NBFC branches spread across 10 states and one union territory in India, with significant presence in Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.

The company plans to set up an additional 162 branches and seven central processing centers during the financial year 2018. As of May 2017, it conducted operations through 269 branches, 121 asset centers, one central processing center and 10 offices,


Vehicle finance business, which contributed 50.27 percent to total gross AUM, grew at a CAGR of 16.49 percent to Rs 5,395.68 crore in FY13-17 while MSME loans business, which contributed 29.96 percent to to gross AUM showed a 54.71 percent CAGR to Rs 3,216.34 crore in FY13-17.

SME loans business, which consisted of 19.77 percent of total gross AUM, grew 77.79 percent CAGR to Rs 2,121.84 crore in FY13-17.


During the year March 2017, the company sold its investment in subsidiary companies viz. Aavas Financiers (formerly known as AU Housing Finance) and Index Money and associate companies viz. M Power Micro Finance and Au Insurance Broking Services. The profit on sale of these investments of Rs 670.35 crore (Rs 516.86 crore, net of tax) is disclosed as an exceptional item. Profit after tax excluding exceptional item is Rs 325.85 crore in FY17.

Geographical Spread of Active Loan Accounts


Geographical Spread of Gross AUM



Sanjay Agarwal, Jyoti Agarwal, Shakuntala Agarwal and Chiranji Lal Agarwal are promoters of the company. As of June 14, promoters collectively held 9,48,73,926 equity shares, which is equivalent to 33.38 percent of the pre-offer paid-up equity share capital.

Sanjay Agarwal, managing director and CEO, is a first generation entrepreneur of the company.



Board of Directors


Management Organisation Structure



Shareholders other than promoters include marquee investors such as the International Finance Corporation (part of the World Bank Group), Redwood Investment Ltd (belonging to the Warburg Pincus group), Labh Investments (a wholly owned subsidiary of ChrysCapital VI, LLC), Ourea Holdings (a wholly-owned subsidiary of Kedaara Capital I) and Kedaara Capital Alternative Investment Fund - Kedaara Capital AIF 1.

Top 10 shareholders held 86.48 percent stake in the company as of June 14, 2017:


Dividend Policy

AU has not declared any dividend on the equity shares in financial years 2013, 2014, 2015, 2016, and 2017.


1> Leverage existing capabilities: Company intends to leverage its capabilities as a former asset finance NBFC including branch network, customer base, technology driven, low cost hub-and-spoke model and local know-how in the geographical areas in which it operates for SFB operations. As an SFB, it intends to strategically expand operations by offering a diverse suite of banking products and services at branches.

2> Branch expansion: Company intends to gradually open 162 additional branches to reach 431 branches, and 121 asset centers in FY18, including 23 branches in Tier 1 centers beyond the 10 states and one union territory in which it currently presents.

3> Comprehensive suite of banking services: It intends to provide unsecured business loans and housing finance loans in FY18. It also aims to sell mutual funds, insurance and risk management products and provide financial advisory services, subject to receipt of requisite approvals from regulatory authorities.

4> Technology upgradation: It intends to continue to upgrade technology systems with automated, digitised and other technology-enabled platforms and tools, to strengthen banking and financing initiatives and derive greater operational, cost and management efficiencies.

5> Brand presence: It seeks to leverage and enhance brand to build presence in the banking sector and develop new customer and industry relationships beyond existing business lines.


Brokerage houses expect following risks:-

1> Compulsory compliance with maintaining CRR (cash reserve ratio) and SLR (statutory liquidity ratio) may impact loan book growth and NIMs

2> In order to attract CASA, higher interest may be offered, which in turn will hurt NIMs and return ratios

3> Cost/income ratio will need to be monitored closely as the company expands into newer regions

4> Currently, 79.29 percent of the gross AUM is located in western India. Any adverse political, economic or social development in this region could impair asset quality and result in high non-performing assets

5> Concentration in the state of Rajasthan, which covers approximately 56 percent of its overall portfolio, is a risk

6> Failure of new product launches

7> Non-compliance with priority sector lending requirements, as mandated by the RBI, could invoke regulatory action from the RBI.

8> Ability to convert itself into a small bank

9> Liability scale-up is critical to brisk growth sustenance

10> As an SFB, the company may unable to access some of the sources of funds that were available to the company as NBFC

11> Significantly dependent on its vehicle finance business

12> If customers default in their repayment obligations, business, results of operations, financial condition and cash flows may be adversely affected

13> Any downgrade in credit ratings could increase finance costs and adversely affect business, results of operations, financial condition and cash flows

Brokers' take

Majority of brokerage houses are positive on the company, given its strong financials, presence in under-served segments, robust processes, credible management, diversified product portfolio, significant presence in rural and semi-urban markets, robust and comprehensive credit assessment and risk management framework, experienced management and access to diversified sources of funding.

KR Choksey

At the upper price-band of Rs 358, issue is priced at 5.1x FY17 book value. Based on the management’s successful track-record of scaling up the business over the years, generating high returns (better return on average equity than peers), focus on optimising costs, well established framework for controlling asset quality and well-thought future expansion strategy, it advises to subscribe for the long term.

Antique Stock Broking

Given the strong presence in niche customer segments, AU SFB's profitability will be remained superior to most conventional banks. Despite the migration to SFB, it estimates that AU will report trough return on equities of around 17 percent in FY18 this will recover to 20 percent by FY20. This is significantly better than its listed peers which are currently reporting single digit RoEs. As such, valuations at 3.2x book on FY20 are reasonable, and investors can expect strong upside over the next few years.


At the upper end of price band of Rs 355-358, the company is being valued at 5.3x FY17 P/ABV. This valuation, more than being palatable, offers a material upside post listing. It recommends subscribe.


The research house has assigned 2.5 ranking out of 5, which is partly fair ranking. Check out comparison with peers.



Due to the gains from the exceptional items (sale proceeds of subsidiaries) the return on networth (RONW) surged to 42.14 percent and the book value too surged to Rs 70.34. However, even on excluding the exceptional gains, the RONW for FY17 stood at a healthy 22 percent which is considered attractive.
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