Sharekhan is bullish on AU Small Finance Bank has recommended buy rating on the stock with a target price of Rs 800 in its research report dated December 08, 2022.
December 09, 2022 / 01:56 PM IST
Sharekhan’s research report on AU Small Finance Bank
AUSFB outlined how the bank is attractively positioned to capture a large untapped MSME opportunity in the fastest growing Indian economy along with building strong competitive moats for sustained growth in a risk calibrated manner. The bank, in depth, discussed about its strategy build around the two business units on asset side – Secured Business Loans (SBL) and Commercial Banking. The bank’s focus is on building a granular book using its time-tested prudent underwriting practices developed through deep understanding of customer profile and geography, by expanding into rural and semi-urban areas. The bank guided that SBL is the most profitable book for the bank and has created a niche for itself; average ticket size is less than Rs. 25 lakh for almost ~75% of the total business. Commercial banking also generates healthy ROA of ~2.5% for the bank along with maintaining pristine asset quality in both the business segments. We believe AUSFB has a clear road map for its sustainable profitable growth path with the right strategy in place on both asset as well as liability sides along with strong execution capabilities.
Thus, we retain our Buy rating on the stock with an unchanged PT of Rs. 800. The stock is currently trading at 5.2x/4.4x/3.7x its FY2023E/FY2024E/FY2025E ABV. We believe strong earnings growth and longevity of the franchise would support the rich valuations.
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