Buy AU Small Finance Bank; target of Rs 712: Cholamandalam Securities

AU SFB’s AUM grew by 62.2% YoY (7.6 %QoQ) to INR 218bn (in-line with CSEC estimate of 62.8% YoY) with major contribution coming from vehicles and MSME segments, which grew by 49.2% YoY and 71.2% YoY respectively. Retail assets grew by a healthy 58.3% YoY, with Wheels and MSME segments contributing 43% and 31% respectively to the overall AUM. 3QFY19 was the third consecutive quarter in which the bank achieved more than 60% growth in their AUM. Disbursements for the quarter demonstrated robust growth of 57% YoY and stood at INR 40.5bn, making it the second straight quarter in which AU has disbursed more than INR 40bn. Going forward, the management has guided for a 40% growth in its overall AUM.

Outlook

The stock is currently trading at 3.9X P/ABV and 21.2X P/E of FY21E. We rate the stock a BUY, with a target price of INR 712, assigning a P/ABV of 4.5X of FY21E, with an upside of 17%.

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