Stock To Buy: Gain Aggressive 44% Return, This Small Finance Bank Grew 37% YoY: Says Motilal Oswal

Reputed Brokerage firm Motilal Oswal recommends investors buying the stocks of AU Small Finance Bank. The Small Finance Bank has reported modest sequential growth of 4.9%, increased 37% YoY in total AUM to around Rs. 502b.

Target Price, Current Market Price

The Current Market Price (CMP) of AU Small Finance Bank is Rs. 563. Motilal Oswal has estimated a Target Price for the stock at Rs. 813. This stock has the potential to give a 44% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 35,082 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 563
Target Price	Rs. 813
Potential 1 year return	44.40%
52 week high share price	Rs. 732.98
52 week low share price	Rs. 462.50

On a gross advances basis, it witnessed a growth of 5.5% QoQ (up 42.3% YoY). In 1QFY23, disbursements remained healthy, but moderated by 18% QoQ to Rs. 84.5b (up 345% YoY due to a low base). The bank is witnessing strong traction in its Credit Cards business, with outstanding cards of ~0.24m as of June, 2022.

Stock advantages: Motilal Oswal

Mentioning the stock's advantages the firm said, "AU Small Finance Bank continues to post strong YoY growth in advances. However, the momentum softened on a QoQ basis. Growth in advances is led by strong disbursements on the back of continuous improvement in the business environment. Deposit growth remains strong, led by healthy CASA growth. On the asset quality front, collection efficiency remains strong (in excess of 100%), which is likely to result in an improvement in asset quality ratios."

"On the liability front, total deposits grew ~48% YoY and 3.9% QoQ to Rs. 546b. This was led by a strong 9% QoQ (+125% YoY) growth in CASA deposits, while term deposits grew ~21% YoY and 1% QoQ. CASA ratio improved to 39% (v/s 37% in 4QFY22). The average cost of funds remains stable at 5.7%. However, the incremental cost of funds rose 40bp QoQ to 5.7%, which can keep margin under pressure," Motilal Oswal added.

Company profile:

After bagging the Small Finance Bank (SFB) license in 2015, Au Financiers commenced its journey as an SFB in April 2017. In the same year, it got the Scheduled Bank status on November 1, and became a Fortune India 500 Company. Throughout its journey from an NBFC to a Bank, it has focused on solutions, based on the evolving needs of its customers. As custodians of depositor's wealth, the Bank ensured the highest level of compliance throughout and emerged as a well-governed and trusted financial institution. On the asset quality front, collection efficiency remained strong (103-106%) over 1QFY23, which is likely to aid a sustained improvement in asset quality.

 

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.