AU Small Finance Bank share target: Up 11% in 4 days, will recovery in this battered SFB stock continue?
A median target of 23 analysts suggests an 11 per cent upside for the stock.
Friday was the fourth day of straight gains for the stock, with the scrip hitting a high of Rs 1,183.45, up 11 per cent over March 7 closing of Rs 1,064.90. At the prevailing price, the scrip is still down 17 per cent from its 52-week high of Rs 1,420.65.
JM Financial said AU SFB trades at premium valuations of 4.2 times FY23 and 3.5 times FY24 book value per share (BVPS), which adequately captures the positives – superior return profile and a long runway to growth. The brokerage has a hold rating on the stock with a target of Rs 1,400, valued at 4.3 times FY24 BVPS.
Kotak said there was no change in its expectation on AU’s excellent performance on growth and asset quality across cycles. “However, valuations remain a constraint. Further, there are fresh near-term headwinds around crude oil/inflation and its potential impact on the vehicle book and overall growth environment (supply or demand-driven). We cut fair value to Rs 1,050 from Rs 1,100 and retain our SELL rating,” it said.
Giving updates on its wheels and housing loans businesses, the SFB said it was bullish on strong growth prospects in both the segments given low penetration levels, increasing geographical presence and untapped opportunities in the existing markets.
Thrust on digitalisation remains high to accelerate growth, improve efficiencies and risk management practices, the management said.
IIFL said AU SFB has a presence across the product spectrum but market share in states other than Rajasthan is low, indicating a long growth runway.
“In the housing loan segment, growth would be driven by deeper penetration in existing geographies (8 states) and expansion into other states where the bank already has a presence (7 states). Overall, we remain positive on the bank’s growth momentum going forward. Post recent correction and rollover of target price to FY24, we upgrade our recommendation on the stock to ADD based on 4 times BVPS,” IIFL said while suggesting a target of Rs 1,320 on the stock.
The bank has a low average EMI of Rs 12,000-13,000 in the wheels segment, which indicates easier serviceability and helps in maintaining asset quality, analysts said. Personal vehicles account for 44 per cent of assets under management (AUM) followed by commercial loading and commercial passenger at 26 per cent and 17 per cent, respectively.
Total assets under management for the segment stood at Rs 15,525 crore and account for 40 per cent of total loans.
The SFB said it is focusing on affordable housing and the average tenor of such loans at origination is 18 years. “This adds duration to the overall book and increases customer stickiness for the bank to be able to cross-sell its range of other products. Asset quality in this segment remains well controlled with GNPA at 0.6 per cent,” IIFL said.
Total AUM for this segment stood at Rs 2,099 crore and accounted for 5 per cent of loans.
Motilal Oswal Securities expects AU SFB to deliver 35 per cent earnings CAGR over FY22-24 with an improvement in ROA to 2.1 per cent and ROE to 20.4 per cent in FY24. This brokerage has a ‘buy’ rating on the stock with a target of Rs 1,550.
