AU Small Finance hits new low, slips 14% in 4 days post March qtr results

Analysts believe the bank will be unable to maintain high AUM growth and will likely see a sharp rise in credit cost & deterioration in incremental deposit mix, amid the current lockdown

Shares of AU Small Finance Bank (SFB) slipped for the fourth straight day, down 5 per cent to Rs 433 on the BSE on Thursday as the lender reported lower-than-expected net profit owing to the higher provisions created toward special mention accounts (SMA).

The private sector lender's stock has skid 14 per cent in the past four trading days. It has fallen below its previous low of Rs 444, touched on April 7, 2020 and trading at its lowest level since its listing on July 10, 2017. The stock has tanked 64 per cent from its all-time high level of Rs 1,218 touched in March 2, this year.

Till 11:48 am, a combined 284,000 shares changed hands and there were pending sell orders for 125,000 shares on the BSE and NSE. In comparison, the S&P BSE Sensex was down 0.56 per at 31,509 points.

During the March quarter, AU Small Finance Bank reported 3.5 per cent year-on-year (YoY) growth in profit after tax to Rs 122 crore, affected by higher provisions of Rs 151 crore, as it made 5 per cent provisions (Rs 138 crore) toward SMA accounts, as per an RBI circular. Analysts had expected net profit of around Rs 190 crore for the quarter. Net interest income (NII)  grew 43 per cent YoY to Rs 555 crore, while margins were stable at 5.5 per cent.

Analysts at Elara Capital believe the bank will be unable to maintain high assets under management (AUM) growth and will likely see a sharp rise in credit cost & deterioration in incremental deposit mix, amid the current lockdown. The customer base of AU SFB, which is largely non-salaried and belongs to the low and middle-income groups, is vulnerable to the current lockdown, it added.

“We believe AU SFB’s superior execution, strong collection efficiency and higher-than-sector growth are fully priced in its rich valuation of 3.3x FY21E P/BV while risks of higher credit cost and slower growth are not. The bank’s customer base (non-salaried and lower & middle income) is vulnerable to the lockdown”, the brokerage firm said in result update.

“The bank may witness concentration risk in terms of normalising operations (specifically lending and collections) in the near-term, considering the nationwide lockdown, which may get extended for geographies reporting high positive COVID-19 cases. This may also lead to lower disbursement growth than previous periods for the near-term, considering the dynamics of the industries have been affected; where the bank is offering its lending products – vehicle financing and MSME lending,” credit rating agency India Ratings and Research (Ind-Ra) said on April 8, 2020.