AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Update on the Indian Market:

On Monday, NIFTY closed 0.3% lower at 11,477 points. NIFTY reported September 2019 gains of over 4%. Amongst the NIFTY 50 Stocks, BHARTIARTL (+6.9%), HCLTECH (+3.6%) and UPL (+3.3%) were the top gainers while YESBANK (-14.4%), INDUSINDBK (-6.1%) with other banks dragged the NIFTY down. In the sector-wise performances, IT (+1.9%) and FMCG (+0.3%) were the only gainers while PSU Banks (-3.5%), Private Banks (-2.7%), Financial Services (-2.1%), Media (-2.1%) and Pharma (1.9%) were losers for the day.

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Key takeaways from the interview of Mr Sanjay Agarwal, MD & CEO, AU Small Finance Bank; dated 26th September 2019 on CNBC TV 18:

  • In the meeting with the Smt. Nirmala Sitharaman, Minister of Finance and Minister of Corporate Affairs, India; Mr Agarwal mentioned that the representatives of the banking fraternity accepted that there are no liquidity issues with the banks or the large NBFCs.
  • AUBANK operates in around 150 districts and 10,000 villages. There are no liquidity crises in any of the areas where AUBANK operates.
  • In 1QFY20, AUBANK reported 44% in growth in Assets Under Management (AUM) and 40% in disbursements v/s RBI financial sector growth rate of ~10%. The deposits increased by 100% YoY.
  • AUBANK has been able to deliver the target they had set. Personal vehicle sales have suffered. The commercial vehicle segment is cyclical and will turn around in due time.
  • AUBANK already has a business strategy in line with the Finance minister’s advice of increasing the presence in the field.
  • Mr Agarwal mentioned that the money is available for customers who meet the requirements of eligibility of credibility.
  • Recent tax reforms from 35% to 25% will lead to growth in the margins.  AUBANK is yet to decide on how it is going to utilize the benefit arising from these reforms; whether for Capex or for improving the Return on Assets (ROA).
  • AUBANK has a small presence in the gold loans segment but is growing at ~80% YoY. Consumer durable loans too, form a very small part of the advances and is expected to grow at ~80-90% YoY.

Consensus Estimate (Source: market screener website)

  • The closing price of AUBANK was ₹ 661/- as of 30-September-19. It traded at 4.7x/3.9x /3.2x the consensus book value for FY20E/ FY21E/ FY22E of ₹ 140/168/206 respectively.
  • Consensus target price of ₹ 699/- implies a PE multiple of 3.4x on the FY22E book value of ₹ 206/-

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