After 13 straight sessions of positive returns, shares of AU Small Finance Bank fell on Tuesday on the back of profit booking and a downgrade by brokerage house Motilal Oswal.
The stock fell as much as 2.4 percent to its day's low of ₹771. The stock hit its 52-week high of ₹794.95 in yesterday's trade (Monday, May 29, 2023).
In the last 13 sessions, the stock has advanced 14.6 percent. Meanwhile, it has gained 18.5 percent in 2023 YTD and jumped 21 percent in the last 1 year.
The stock jumped nearly 17 percent just in May till date following a 15 percent rise in April. However, it lost 25.4 percent, 4.2 percent and 2.3 percent in Jan, Feb and March 2023, respectively.
Meanwhile, from its COVID low of ₹183, hit in May 2020, the stock has given multibagger returns, soaring 324 percent till date.
Despite such strong returns, domestic house Motilal Oswal has downgraded the stock to 'neutral' from 'buy' with a target price of ₹830, indicating just a 5 percent upside.
While the management has shown strong execution prowess and MOSL believes that the long-term growth story remains intact, it finds the current risk-reward unattractive after the recent stock performance.
"AUBANK’s stock has delivered healthy returns of over 40 percent over the past two months, particularly after the RBI approved the re-appointment of Mr. Sanjay Agarwal as MD and CEO of the bank. Although we see a robust growth opportunity for the bank in the long term and believe the stock can be a compounder if the bank continues to execute well, near-term growth opportunities are fairly priced in after the recent outperformance. We, thus, downgrade the rating to Neutral with a TP of INR 830," said the brokerage.
The brokerage further expects AU Bank's loan growth is likely to remain steady at a 28 percent CAGR, driven by sustained traction in key business verticals (Vehicle & MSME) and a scale-up in new lending segments such as housing loans, credit cards, etc. However, given the thrust on physical expansion, continued tech investments and potential NIM (net interest margin) compression, it estimates AUBANK to deliver RoA (return on assets) of 1.8-1.9 percent in FY24/25.
It also forecasts a 28 percent earnings CAGR over FY23-25 versus a 37 percent CAGR over FY18-23.
The brokerage also pointed out that the lender is focusing on diversifying the loan book amid robust momentum in segments such as home loans. The wholesale book has also grown at a faster pace while a higher mix of fixed-rate books has kept the yields under pressure.
It noted that the yield on AUM (assets under management) has been stagnant at 13.3-13.4 percent over the past 4-5 quarters. Further, the cost of funds has witnessed a constant increase, up 60 bps in the past one year and that of the total increase in the funding cost over the past one year, more than half happened in Q4FY23, observed MOSL.
It believes that liabilities will continue to re-price at a faster pace and outpace the lending yields and hence remain watchful of margins. The bank is witnessing pressure on margins, while loan growth has moderated and is likely to trail the historic growth trends, it added.
In the March quarter, AU Small Finance Bank reported its highest-ever quarterly profit of ₹425 crore, up 23 percent from ₹346.07 crore in the same quarter last year.
The bank posted strong growth in its net interest income (NII), while provisions declined and asset quality improved further.
Its NII rose 29.5 percent to ₹1,213.20 crore in Q4FY23, versus ₹936.56 crore in Q4FY22.
Meanwhile, the lender's net profit for the full financial year FY23 rose 26 percent to ₹1,428 crore.
