AU Small Finance Bank joins Rs 50,000 cr m-cap club as stock hits new high

Shares of AU Small Finance Bank (AU Bank) gained 3 per cent to hit a fresh record high of Rs 754.8 in Thursday's intra-day trade, marking its entry into the elite league of corporate entities with a market value of over Rs 50,000 crore. At 12:11 pm; the stock was up 2.8 per cent at Rs 752.15 with a market capitalisation (m-cap) of Rs 50,154 crore, the BSE data shows. Since April, the market price of AU SFB has rallied 30 per cent after the company reported its highest ever quarterly profit of Rs 425 crore in March quarter, up 23 per cent year-on-year (YoY). The bank's net profit was Rs 346 crore in the year-ago quarter. Bank's asset quality, meanwhile, improved as gross NPA was around 1.6 per cent in March 2023, as against 1.98 per cent in March 2022. Net NPA, on the other hand, stood at 0.42 per cent of net advances in March 2023 as against 0.5 per cent, in the year-ago period. For full financial year 2022-23 (FY23), AU Bank delivered strong result across all parameters – deposits grew 32 per cent YoY, advances 26 per cent YoY and full year profit 26 per cent YoY to Rs 1,428 crore, supported by strong growth of 37 per cent YoY in net interest income. Recently, the Reserve Bank of India (RBI) approved MD & CEO Sanjay Agarwal’s and Whole-time Director Uttam Tibrewal’s reappointment for the next 3 years (till 2026), thereby removing a major overhang, particularly post the spate of resignations in risk/compliance last year that raised concerns. The bank now awaits guidelines from the RBI to apply for the Universal Banking licence. Analysts at CARE Ratings believe that AU Small Financial Bank shall continue to maintain its steady growth in advances, deposits and healthy profitability profile over the medium term, while maintaining stable asset quality and comfortable capitalisation levels. Despite undertaking significant growth in the loan book, AU Bank continues to be sufficiently capitalised, helped by regular capital infusions by way of Qualified Institutional Placement (QIP), the latest being Rs 2,000 crore in August 2022 and steady healthy internal accruals. "Going ahead, we expect AU Bank to maintain sufficient cushion over the minimum regulatory requirements. Furthermore, the restriction of promoters to keep their shareholding of a minimum 26 per cent is no longer applicable from April 2022, as the bank completed its five years of its operations as an SFB," the ratings agency said. AU Bank is a scheduled commercial bank and the largest small finance bank in the country. The bank has a net worth of Rs 10,977 crore, deposit base of Rs 69,365 crore, gross advance of Rs 59,158 crore, and balance sheet size of Rs 90,216 crore.  Moreover, analysts at HDFC Securities believe that AU Bank's investment in franchise-building activities and new businesses would drag medium-term profitability before operating leverage benefits accrue in FY25 (as per management guidance) “We watch for improvement in efficiency ratios and gradual reflation in margins (subject to a turn in the rate cycle),” the brokerage firm added.