Motilal Oswal Recommends Buying This Small Finance Bank Stock For 33% Return

Brokerage firm Motilal Oswal recently suggested investors buying the stock of AU Small Finance Bank for a 33% return. About this stock, the firm mentioned, "Wheels and Home loans are the key business drivers."

Target Price

The Current Market Price (CMP) of AU Small Finance Bank is Rs. 1162. Motilal Oswal has estimated a Target Price for the stock at Rs. 1550. The stock is expected to offer a 33% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 1162
Target Price	Rs. 1550
1 year return	33.00%

Company performance

In AUBANK's book, 89% is Housing portfolio while 11% is Non-Housing, and NPA in home loans stands at 0.61%. AUBANK's 67% of the book is in core geographies while 33% is in urban regions. GNPA in the wheels business stands at 3.4%; gradually moving towards the Pre-Covid levels. AUBANK has been reporting a strong operating performance and robust business growth while asset quality has been particularly resilient amid a challenging economic environment. However, market share for AUBANK in Rajasthan is just 8%, while it is in low-single digits across other geographies, thus, there remains ample scope for future growth.

Comments by Motilal Oswal

Motilal Oswal, "With an improvement in economic activity (as reflected by key economic indicators - GST collections, GDP growth, and PMI), the bank appears on track to deliver superior growth while retail deposit mix continues to improve supporting the margin profile. Collection efficiency stands healthy at 106% and the bank carries contingent reserves of INR3b (75bp of loans), which provides further comfort. We estimate AUBANK to deliver ~35% earnings CAGR over FY22-24, while RoA/RoE improves to 2.1%/20.4% in FY24E. We maintain our BUY rating."

About the company

Founded in Jaipur in 1996 as Au Financiers, a non-deposit taking Non-Banking Finance Company (NBFC), it effectively worked on funding economic growth, especially for the under-served and un-served low & middle-class individuals. For over two decades we provided secured funding to customers largely in Vehicle Loan, Business Loan and Housing Loan segments while organically spreading our geographical presence. In 2015, Au Financiers became AU Small Finance Bank. Partnership with HDFC Bank taught a lot and allowed AU Bank to build and manage the book and achieve process orientation.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.