AU Small Finance Bank - IPO Note - Sushil Finance

AU Small Finance Bank (SFB), incorporated in the year 1996 has recently transitioned from a prominent, retail focused non-banking finance company (NBFC), which primarily served low and middle-income individuals and businesses that have limited or no access to formal banking and finance channels. It received license from RBI on December 20, 2016 and commenced SFB operations from April 19, 2017. As an NBFC, it operated in three business lines: Vehicle finance; Micro, Small and Medium Enterprises ("MSMEs") loans; and Small and Medium Enterprises ("SMEs") loans. After commencement of SFB operations, it expanded and strengthened business model to offer a diverse suite of banking products and services by leveraging its asset-based lending strengths, NBFC customer base and cost efficient, technology driven hub-and spoke branch operating model to successfully operate SFB.

As of March 31, 2017, the company operates through 301 NBFC branches spread across 10 states and one union territory in India. As of 31 March 2017, AU SFB had turned in strong operating performance, leading to a long-term credit rating of CRISIL A+/Stable. It had gross NPAs of only 1.6% and net NPAs of 1.1% with net worth of INR 2,000 Cr.

HIGHLIGHTS

Gross AUM increased from Rs. 5,567.7 Cr. in FY '15 to Rs. 10,734 Cr. in FY '17. Net NPA is 1.61 % in FY '17 from 0.92% in FY '15.

* Diversified Product Portfolio and Revenue Streams.
* Customer Centric Organizational Commitment.
* Secured lending
* Significant Presence in Rural and Semi-Urban Markets with Focus on Low and Middle Income Customers
* Robust and Comprehensive Credit Assessment and Risk Management Framework
* Access to Diversified Sources of Funding over the Years.

Objects of the issue

1. To achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the Offer for Sale of 53,422,169 Equity Shares.

OUTLOOK:

With strong customer base of NBFC and the infrastructure, company has strong plan of opening new around 160 branches by the end of FY '18. The company's revenue has grown at CAGR of 36% in last 4 years. Its average cost of borrowings has reduced from 12.61% to 10.13% in 4 years. Company's credit rating is 'A+/Stable' by CRISIL & ICRA.

Considering financials of the company, Book Value per share is Rs. 70 and it is coming up with issue price of Rs. 358, which is 5 times the price, compared to the competitors like Equitas & Ujjivan which is trading at 3 times.

History of secured lending helps lower the NPA which is 1.6% in FY '17, which is lower than the above mentioned competitors who are at around 4%.

Considering the management, we recommend investors to invest for long term.

Source : Equity Bulls

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