AU Small Finance Bank makes strong debut, lists at 47% premium to IPO price

The stock listed at Rs 525, a 47% premium against its IPO price of Rs 358 per share.

AU Small Finance Bank has listed at Rs 525, a 47% premium against its initial public offer (IPO) price of Rs 358 per share on the BSE.

At 10:01 am; the stock was trading at Rs 528, after hitting a high of Rs 544 in intra-day trade so far.  Around 8.57 million shares changed hands on the counter, the BSE data shows.

The NBFC IPO received a strong response from institutional as well as retail investors. The issue was oversubscribed 53.60 times backed by a strong response from high networth individuals (HNI), which was oversubscribed 144 times and qualified institutional buyers (QIBs) by 79 times. The retail investors’ portion was subscribed by 3.52 times.

AU Small Finance Bank is a small finance bank (SFB) that has recently transitioned from retail focused non-banking finance company (NBFC). The company is the only NBFC to obtain SFB license from the Reserve Bank of India (RBI).

As a NBFC, it has a history of successfully serving the low & middle income individuals and businesses having limited or no access to the formal banking and finance systems.

“On valuation front, AU Small Bank is demanding a valuation of 5.3x to its FY17 adjusted book value, which is at a premium to its peer average of 3.5x. Moreover, on other parameters such as P/E, MCAP/Loan Book and MCAP/Interest Income, it is also at a premium to its peers. Thus the demanded valuation is on higher side, however considering the growth potential arising from SFB operations, secured asset book and focus on unbanked region, we feel that the demanded valuation is justified. Additionally, the significant PE investor’s stake in the company indicates the future growth potential,” Choice Broking said in IPO note.

“AU has reported a strong 48% profit after tax CAGR over FY2013- 17, and we believe it has the potential to deliver 30% PAT CAGR over FY2017-19, and based on our quick estimates on FY2019 BV, the issue is offered at 3.5x. While the issue is offered at premium valuations, we believe the valuation is justified given the historical track record and strong growth potential the SFB offers,” Angel Broking said in a note.

According to analysts at IIFL Wealth Management, for AU Small Bank, in the initial phase post SFB launch, growth and profitability would be restricted; but the longer run prospects seem bright. Conversion into SFB will augment earnings diversity and stability.