AU SFB - Applies For Universal Bank License; Merger Integration With E-Fincare On Track: Nirmal Bang

Nirmal Bang Report

We met the management of AU Small Finance Bank Ltd. Following are the key takeaways of the meeting:

1. AU Small Finance Bank Ltd. has applied to RBI for voluntary transition from a small finance bank to a universal bank.

2. The merger with e-Fincare is well on track with HR integration complete, SA rates of e-Fincare aligned with AU SFB and tech integration to be completed in next 12-18 months. E-Fincare is operating as the sixth business unit of AU SFB.

3. Asset quality of microfinance business is relatively better as compared to peers and the bank has kept guardrails in the form of geographic and loan amount wise caps and compulsory e-KYC and bureau checks.

4. FY25 Guidance on Key parameters: loan and deposit growth at 25%; NIM – 5.7-5.8%; cost to income ratio – 62-63%; credit cost – 1.1-1.2% and RoA – 1.6%.

We have revised our earnings estimates upwards by 5.5% and 6.5% for FY25E and FY26E on assumption of 24.5% CAGR in loan book over FY24- FY26 (growth over proforma merged entity numbers for March 2024).

We have valued AU SFB at three times its September 2026E adjusted book value (versus 2.9 times June 2026E ABV earlier; past five year average P/ABV multiple at 2.94 times), thus deriving a target price of Rs 811 (versus Rs 745 earlier).

Considering that the merger integration with Fincare SFB is well underway and the prospects of AU SFB becoming a universal bank, we have a positive view on AU SFB. Maintain ‘Buy’.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.