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YES Securities
AU SFB (Buy)
CMP: ₹698.5
Target: ₹925
AU Small Finance Bank expressed confidence in delivering 25-30 per cent AUM growth in FY20, notwithstanding market-wide slowdown in key retail products such as wheels (42 per cent of AUM) and secured MSME financing (32 per cent of AUM).
The NBFC portfolio (10 per cent of AUM) is granular, regularly paying with no exposure to the known stressed companies. RE portfolio (3 per cent of AUM) too is thinly spread with exposures to smaller projects.
Despite its high valuation, we believe AU SFB represents a credible investment option for long term investors given a) strong management and asset quality comfort; b) massive scalability of the business considering current small size, asset-side moats and a banking platform; c) well-capitalised and liquid balance sheet and ability to raise capital at favourable valuation; and d) expected 40 per cent+ earnings CAGR over FY19-22 with minimal risks to its delivery.
The stock currently trades at around 3.5x P/ABV and 28x P/E on our FY21 estimates. We have factored ₹2,000 crore capital raise in H2 FY21. AU SFB has returned about 20 per cent since our initiating coverage report dated early April. Remain bullish and will review our two-year price target of ₹925 after Q1 FY20 results.
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