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Buy This Smallcap Banking Stock For Likely 28% Return, Guided For 25-30% Loan Growth: Sharekhan

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Brokerage firm Sharekhan recommends investors buying the stocks of AU Small Finance Bank. Cost-to-Income ratio guided at 55%-57% for FY2023E/FY2024E as management believes opex growth is likely to be higher in-line with revenue growth as the bank continues to invest in constant digital innovation, helping to scale its business, and improve its brand identity.

 

Target Price, Current Market Price, and Company Performance

Target Price, Current Market Price, and Company Performance

The Current Market Price (CMP) of AU Small Finance Bank is Rs. 614. Sharekhan has estimated a Target Price for the stock at Rs. 810. The stock has potential to give a 28% return, in the upcoming 1 year. This is a large-cap company with a market capitalization of around Rs. 38,551 crore.

Stock Outlook 
Current Market Price (CMP)Rs. 614
Target PriceRs. 810
Potential 1 year return28.00%
52 week high share priceRs. 732.98
52 week low share priceRs. 462.50


The company's Net Interest Income in FY22 was recorded at Rs. 3,234 crore, which is expected to be at Rs. 3,823 crore in FY23. Their Net profit in FY22 stood at Rs. 1130 crore, which is expected to be at Rs. 1,352 crore in FY23.

The bank believes the margin should moderate in FY2023E/FY2024E from 5.7% in FY2022 due to repricing of liabilities to an extent taking place in the near term and a higher share of fixed-rate loan book (~75%).

Sharekhan comments: stock advantages and risks
 

Sharekhan comments: stock advantages and risks

Commenting on the stock, Sharekhan said, "Our interaction with the management of AU Small Finance Bank reaffirmed our expectation of strong earnings growth momentum going ahead, led by sustainable and healthy loan growth and lower credit cost. The bank has guided for 25-30% loan growth. Loan growth has already started to pick up in the past two quarters and we expect AUM growth to be higher in FY2023E/FY2024E from ~27% in FY2022, led by sharp rebound in economic activity. Collection efficiency across product lines and restructured portfolio is similar to healthy levels witnessed in Q4FY2022. This should prevent deterioration in asset quality and would lead to lower credit cost in FY2023E/FY2024E."

However, economic slowdown due to which slower loan growth and higher-than-anticipated credit cost especially from small business loans portfolio and wheels could affect earnings, remains as the key risk.

Company profile

Company profile

For more than 25 years, the institution has helped over 2 million customers achieve their business objectives. AU Bank is listed in Fortune India 500 Company. Over 30 Banking Products, a holistic bouquet of banking products to serve all the customers' financial needs.

Opex growth is likely to be higher as guided by the management, in line with revenue growth as the bank continues to
invest in digital innovation and capabilities, investments in brand building, new business (credit card), expanding distribution, and building capacity by employee additions. There is a long runway for sustainable earnings compounding ahead. Higher provision coverage and contingent buffers provide cushion for any future risk. The bank is on track to become a full-scale universal retail-focused bank adding to its products and features.

Disclaimer

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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Story first published: Tuesday, June 21, 2022, 18:09 [IST]
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