AU Small Finance Bank's shares saw a significant surge of 19% in Thursday's trade following the Reserve Bank of India's (RBI's) approval of the re-appointment of Mr Sanjay Agarwal as MD and CEO for a period of three years, effective April 19, 2023, after his current term ends on April 18, 2023.
The RBI has also approved the re-appointment of Mr Uttam Tibrewal as the Whole Time Director of the bank for a period of three years, effective April 19, 2023, AU Small Finance Bank informed in an exchange filing on Wednesday.
Following the development, the bank shares opened strongly at ₹630 apiece, 8.60% higher than the previous closing price of ₹580.15, and strengthened further in the early trade to ₹689.90, up by 18.91%.
The stock has been under pressure for quite some time due to the lack of clarity about management continuity, as well as the uncertain macro environment.
However, in a recent report, brokerage firm Motilal Oswal stated that the RBI's approval has eliminated a significant overhang, allowing for a shift in focus towards the bank's fundamental performance.
The bank continues to focus on scaling up its key business lines of vehicle and MSME loans, which are seeing healthy trends. It further aims to expand the new segments of housing loans, gold loans, consumer durable financing, and credit cards, among others, which are witnessing robust trends, said the brokerage.
Growth has picked up for the past few quarters, with healthy demand across segments. The bank reported a healthy growth of 5% QoQ and 26% YoY in gross advances in 4QFY23 (9% including the securitized portfolio). Overall, Motilal expects a 29% CAGR in loans over FY23–25.
"AU Small Finance Bank has been reporting strong collection efficiency (upwards of 100%) for the past few quarters, with the bank indicating stronger trends in 4QFY23 as well. The GNPA/NNPA ratios have moderated to 1.8%/0.5%, with PCR improving to 72%."
"While NIMs have been stable for the past few quarters, the average cost of funds has increased 32 basis points QoQ to 6.3%, which can keep margins under pressure. The bank has indicated that an uptick in the funding cost with a marginal increase in disbursement yields might have some marginal impact on spreads. However, the bank would continue to prioritize risk-adjusted yields and calibrated growth," said Motilal Oswal.
Going ahead, the brokerage anticipates that the next milestones to watch out for would be the RBI's approval on the bank's AD-1 banking application and advancements on the universal banking license, which the bank is now likely to apply for.
Motilal Oswal has retained its 'buy' recommendation on the stock with a target price of ₹740 apiece. This implies a potential upside of 27.58% from the stock's previous closing price.
23 analysts polled by MintGenie on an average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
