IPO: AU Small Finance Bank - Subscribe - IIFL

Issue Opens: 28-June-17, Issue Closes: 30-June-17, Price Band: Rs.355-358

An agile SFB on a strong footing

AU Small Finance Bank (AU SFB), operational since April 2017, seems confident of excelling as a banking franchise in the coming years. Much of this confidence stems from its long vintage of being a fast growing, diversified and a highly profitable asset financing NBFC. Having contained NPLs and credit loss at remarkably low levels over the years, AU has demonstrated an impressive credit underwriting ability. Having made requisite investments in the areas of people, technology, operations, physical / digital infrastructure, liability and fee products prior to the SFB launch, its platform is enriched by deep customer relationships, grasp over local milieu, wide regional presence and healthy brand connect for quick-scale up of its liability franchise. An aggressive new branch roll-out plan in the current year would further boost AU's growth plans.

Strong long-term growth & profitability; Subscribe

In its earlier avatar of NBFC, AU grew its gross loan assets and earnings at a robust CAGR of 34% and 65% respectively over FY14-17. The brisk AUM growth was complemented by its business diversity, both in terms of products and geographies. Profitability grew by leaps and bounds, notwithstanding persistent investments on the back of moderation in funding cost and firm control over product pricing. 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. The IPO of 53.4mn shares is a 100% offer for sale; promoters are divesting 9mn shares post which would bring down their holding to ~33%. At the upper end of the price band of Rs355-358, the company is being valued at 5.3x FY17 P/ABV. In our view, this valuation, more than being palatable, offers a material upside post listing. We recommend Subscribe.

Source : Equity Bulls

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