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AU Small Finance Bank: CMP: 599: Long term Gr: 34% Cy Gr: 34% | Q3_FY24 Result Update
(High Interest Rates Increasing Cost of Funds along with increased NPA%)
Small finance banks (SFB) are a type of niche banks in India. Banks with a SFB license can provide basic banking service of acceptance of deposits and lending. The aim behind these is to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities. In February 2015, RBI released the list of entities which had applied for a small finance bank license. There were 72 applicants. On 17 September 2015, The Reserve Bank of India (RBI) announced that it had given provisional licenses to ten entities who would have to convert into small finance banks within one year. Eight out of these ten entities were microfinance NBFCs, reiterating RBIs agenda of financial inclusion.
Currently there are 12 SFB with combined Advances of 1.63 Lakh Cr growing at 36% CAGR during the last 5 Years. AU small finance Bank is the leading bank in advances with around 58000 Cr which is 34% Market share. Hence combined market capitalization of 9 listed companies is 83000 again lead by AU SFB. Both in the terms of Advances and market cap Equitas & Ujjivan follows Au SFB.
AU Small Finance Bank is an Indian small finance bank, based in Jaipur. It was founded as vehicle finance company AU Financiers (India) Ltd in 1996 and converted to a small finance bank on 19 April 2017. Over the years, the Bank has attracted marquee investors like IFC, Warburg Pincus, Temasek Holdings, Nomura, Kotak Mahindra MF, etc. Private equity companies that provided venture capital, including Warburg Pincus and International Finance Corporation, made partial exits for as much as nine times their original investment.
During the initial phase pre_banking also they were growing well with major interest in Vehicle and Housing Finance. Till SFB licence their sales have grown from 250 Cr during Fy_12 to 1200 Cr during Fy_17. Post SFB Till last year we saw their Deposits growing from mere 61000 Cr during fy_18 to 80000 Cr as per latest data. Their advances which were mere 13000 in Fy_18 grew to 67000 Cr as per latest figures. Yes, we can say they were able to grow deposits and advances better than the whole SFB industry. During their whole journey they were able to maintain profitability, Low NPA and better CDR. Yes, AU is the bank who has shown consistent profitability during last 10 Years without a single loss making year despite high challenging times like Covid.
Their IPO came in 2017-18 and we saw good growth, however this was not the environment for strong stable profits yet they were able to make consistent profits.
Q3_fy24: From the beginning of the year, advances growth was no doubt good as usual, but cost of funds were high, raising the cost and even GNPA% were in increasing mode since Q1 itself. Recent Q3_fy24 results also reflect the same trend. We saw growth of 34% but the cost of funds was 44%. Which dragged the margins lower. We saw the margin decline by 200 bps. Hence profit grew by just 16%. GNPA% reached 1.98% increasing by 0.70 bps. Yes, the challenging mode continues.
Moving further we may see sales growth of 32% with affected profit growth of 12%. We may see stock prices in correction till the GNPA% gets lower and Cost of Fund gets better. Can sip till that time. Buying can be done during current fall near 550 and once the improvement would be in place we may see the recovery back towards 780 this year itself.
Over the long term strong 25% growth in advances, sales and Profits can be assumed. Considering Consistent profits we may assume such consistency even in future. Long term multiyear rally can be expected.
Currently 21% Holding is with Mutual fund Companies while FII’s hold around 41% stake.
DISCLOSURE: FOR EDUCATION PURPOSES, DO NOT TREAT AS A RECOMMENDATION
