Au Small Finance Bank Ltd. share price target

AU SFB’s (AU) Q4FY23 has been an eventful quarter – while it continues to deliver robust financial performance as reflected in RoA reaching 2% and RoE at ~16%, re- appointment of Mr. Sanjay Agarwal as MD & CEO and Mr. Uttam Tibrewal as whole- time director for three years (w.e.f. from 19th Apr’23 to 18th Apr’26) and AD-1 license approval testify its successful SFB journey.

The stock currently trades at 3.1x FY25E ABV and we value the stock at 3.6x FY25E ABV to arrive at a target price of Rs 765/share, implying an upside of 16% from the CMP. We reiterate our BUY recommendation on the stock.

AU SFB disclosed that it has received regulatory approval (link) for the re- appointment of Mr. Sanjay Agarwal as MD & CEO and Mr. Uttam Tibrewal as whole- time director for three years (w.e.f. from 19th Apr’23 to 18th Apr’26). We expect this extension to ensure top management continuity.

AU SFB’s (AU) strong financial performance in Q3FY23 with AUM growth of 7% QoQ (20% FY23YTD), steady decline in GNPL ratio to 1.8%, PCR improving to 72%, flat QoQ NIM at 6.2% and ~90bps QoQ reduction in cost/income ratio reassure its ability to navigate the challenging period better than peers and emerge stronger.

We estimate revenue/EBITDA/PAT CAGR of 17%/23%/19% over FY22-25E based on the above thesis and we maintain our long term BUY rating with revised TP of Rs 3200/ share against the CMP of Rs 2,649/share. We value the company at 53x Dec-24 EPS. The TP implies an upside of 12% from the CMP.

Recognising the massive structural growth opportunity across segments, AU Small Finance Bank (AU) has reorganised itself into 10 strategic business units (SBUs) to ensure sustainability and scalability.