Axis Securities Sees 17% Potential Upside To This Mid Cap Banking Stock, Suggests Buy

Axis Securities is bullish on AU Small Finance Bank (AUSFB). The brokerage has assigned a buy call for a target price of Rs 705. It sees a potential gain of up to 17%. It is a Midcap bank having a market cap of Rs 39,458.09 crore at the time of writing.

AUSFB is a retail focused small finance bank which transitioned from an NBFC in April'17 and offers a diversified suite of products spread across Vehicle Finance, SME, Home Loans, Business Banking etc. The bank primarily caters to the low and middle-income individuals and businesses that have limited or no access to formal banking and finance channels. The bank operates its business through 953 touchpoints pan-India.

Stock Outlook

The stock's current market price is Rs 602.55, trading 0.90% up from its previous close at the time of writing on NSE. It was opened at Rs 606.70 apiece. The 52-week low level of the stock is Rs 462.50 recorded on 27 December 2021. The 52 week high of the stock is Rs 732.98 recorded on 21 April 2022. 

Returns over the past 5 years

The stock in the past 3 months has given negative return of 3.33%, however, it performed well in terms of returns on long term investments. Over the years, it has given 7.37% positive returns. In the past 3 years, it gave 81.91% positive return and in the 5 years, it gave 116.06% multibagger return.

Growth runway remains large

AUSFB reported a healthy advances growth of 37/5% YoY/QoQ in Q1FY23 driven by a robust disbursement growth. We expect the growth momentum to continue with the bank delivering a strong advances growth of 25% CAGR over the medium term, driven by the Vehicle Finance, Home Loans, SBL, Credit Cards and Business Banking portfolio.

Asset Quality headwinds well managed

AUSFB has emerged successful navigating COVID-related asset quality headwinds and has been able to maintain strong asset quality. The restructured book has been exhibiting strong collection trends and slippages from the pool well below the anticipated levels. Going forward, we expect asset quality to remain healthy thereby keeping credit costs muted.

Superior RoA/RoE profile

AUSFB is well placed to maintain its NIMs in an increasing interest rate environment and we expect NIMs to be maintained at ~5.8% (+/-10bps) over FY23-25E. Though, higher Opex owing to investments in building the franchise and towards technology will keep cost ratios elevated, it will help AUSFB build a strong platform for sustainable growth over the long term. Despite higher cost ratios, stable NIMs and benign credit costs is likely to help AUSFB deliver strong RoA/RoE of 1.6-1.9%/14-17% over FY23-25E.

 

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.