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Last Updated : Dec 26, 2019 10:32 AM IST | Source: Moneycontrol.com

AU Small Finance Bank gains as Motilal Oswal sees robust growth

AU SFB has been navigating well through the economic slowdown and delivering healthy business growth (45 percent YoY growth in Q2FY20).

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Shares of AU Small Finance Bank gained nearly a percent intraday on December 26 as Motilal Oswal sees robust growth momentum going ahead with asset quality metrics under control.

The stock rallied 42 percent in last nine months. It was quoting at Rs 789, up Rs 4.10, or 0.52 percent on the BSE at 0930 hours IST.

AU SFB has been navigating well through the economic slowdown and delivering healthy business growth (45 percent YoY growth in Q2FY20).


"After incurring significant expenses to put the building blocks in place as it transitioned into a small finance bank, the earnings momentum is gaining pace," Motilal Oswal said.

With the bank appearing set to expand market share in chosen business segments, the brokerage house visited bank's regional office and one of its largest branches in Pune to understand the progress that it is making.

The brokerage house feels the bank has stepped up its focus on the used vehicle segment to (i) combat the slowdown in new vehicles and (ii) capitalize on its long-standing vintage in used vehicle financing, which offers higher risk-adjusted yields and profitability.

The bank has been expanding its penetration in the used distribution channel.

"Nearly half of incremental used vehicle disbursement now comes from non-bank/outside channels (i.e. used outlets of OEMs, semi-organized and small vehicle dealers) compared to around 20 percent earlier. However, origination of new vehicle loans is completely in-house," Motilal Oswal said.

Generally, used vehicle delinquency trend is a tad higher (by 70-80bp) than new wheels; however, the same is partially offset by the lower delinquency levels in refinance (cash on wheels), resulting in similar asset quality for the combined used portfolio as in the new vehicle portfolio, it added.

The brokerage feels AU Bank gains a competitive advantage by offering monthly interest payouts and higher interest rates in comparison to peers. "This facilitates faster customer acquisition and build-up of savings balances."

CASA + retail term deposits remain the key focus area for the branches, the research house said, adding deposit is also the key metric used to evaluate the staff performance.

Separately, Motilal Oswal also visited a new vehicle dealer for the bank to understand the trends in vehicle financing – a segment which has shown growth moderation across lenders.

"According to the dealer check at the Maruti Suzuki showroom in Viman Nagar, Axis Bank, HDFC Bank, SBI and AU Bank are active in car financing. HDFC Bank and SBI together account for 50 percent of the total cars financed, while AU Bank is also gaining share post liquidity constraints for NBFC vehicle financiers and aided by improved turnaround time (TAT)," it said.

Some of the active NBFC vehicle financers have gone on back foot over the past 3-4 months, it added.

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First Published on Dec 26, 2019 10:32 am