AU Small Finance Bank results fail to delight D-Street as shares fall

The September quarter performance of AU Small Finance Bank failed to delight D-Street as share price of the Jaipur-based bank dropped 3.5 percent on October 20.

The bank reported modest operating profitability, said Credit Suisse.

At 10 am, the stock was quoting at Rs 602.45 per share, down 3.75 percent. Ahead of its results, the stock had run up 7.3 percent in the past four sessions.

“The operating environment in the September quarter saw uncertainty over inflation, liquidity and rates intensifying significantly which continues to be the case. While the domestic outlook is encouraging, the possibility of a lagged impact of these factors on demand and activity levels can’t be ignored and we are watchful,” Sanjay Agarwal, MD & CEO of AU Small Finance Bank, said.

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Bank’s net interest income grew 44 percent year on year to Rs 1,083 crore during the quarter. Net profit rose 23 percent to Rs 343 crore.

The net NPAs (or bad loans) declined to 0.56 per cent at the end of the quarter against 1.65 per cent a year ago. However, they remained unchanged sequentially.

Analysts at Motilal Oswal Financial Services have a buy rating on the stock with a target price of Rs 700: “We estimate the bank to deliver 25 percent compound annual growth in earnings over FY22–24 with a return on assets/earnings (RoA/RoE) of 1.8 percent/14.9 percent in FY24.”

Global brokerages Credit Suisse and Morgan Stanley have opposing views. The former has an underperform call with a target of Rs 530 per share while Morgan Stanley has an overweight call with a Rs 875 target.

Morgan Stanley is bullish as asset quality improved and growth remained strong. It expects strong earnings growth over the next two to three years.

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