Hold AU Small Finance Bank; target of Rs 880: Emkay Global Financial
Emkay Global Financial recommended hold rating on AU Small Finance Bank with a target price of Rs 880 in its research report dated October 29, 2020.
November 05, 2020 / 12:14 PM IST
Emkay Global Financial's report on AU Small Finance Bank
Despite moderate loan growth, AU SFB reported higher PAT of Rs3.2bn vs. estimate of Rs1.7bn on a one-off gain from the stake sale in Aavas Financiers (Rs1.25bn) and lower provisions as the bank chose higher profitability instead of shoring up its relatively moderate contingent provision buffer (~1% of AUM). CASA ratio improved sharply (up 600bps qoq) to 20%, driven by strong SA growth, which in turn was driven by the continued focus on retail customer acquisition, including NRI/Sr Citizens and reducing the dependence on bulk deposits. Customer activation rate in Sep was better at 78% vs. 80% at BAU levels. However, nearly 3% of the customers have still not paid any EMIs in Sept/Oct although the bank remains hopeful of recoveries in this pool and thus has not made any additional provision in Q2.
We raise our earnings estimates by 13-20% over FY21-23E and thus revise TP to Rs880 (3.8x Dec FY22E core ABV). Maintain Hold given rich valuations. We believe that the stock’s performance hereon should largely track growth/asset-quality movement.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.