AU Small Finance Bank IPO

AU Small Finance Bank  IPO
This post on AU Small Finance Bank Limited IPO tries to bring out consolidated brokerage views opinions, IPO Review / Analysis, Note/ reports and recommendation of brokerages , Analyst, Business New papers, Management views, information on Anchor investors, Subscription etc on AU Small Finance Bank IPO and shall be updated continuously till the closure of the issue. The information collated from various sources and reports in public domain can help investors to decide whether they should subscribe to AU Small Finance Bank Limited IPO or not.

Related Posts: AU Small Finance Bank IPO Review
AU Small Finance Bank IPO
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AU Small Finance Bank IPO: Grey Market Premium etc.

A general fall in Markets particularly the banks saw AU Small Finance Bank  a dip in Grey Market Premium of AU Small Finance Bank . The sentiment has further hit as the small finance bank was placed under the caution list by the Reserve Bank of India to monitor the foreign shareholding of the company which is hovering around the permissible limit of 49 percent

06/07/17 Grey Market Premium Rs. 95
01/07/17 Grey Market Premium Rs.90,  Kostak (Application rate) –  Rs. 950-1000/-
27/06/17 Grey Market Premium Rs.66,  Kostak (Application rate) –  Rs. 550/-

27/06/17 Grey Market Premium Rs.66,  Kostak (Application rate) –  Rs. 550/-
27/06/17 Grey Market Premium Rs.80,  Kostak (Application rate) –  Rs. 700-750
26/06/17 Grey Market Premium Rs.95-97,  Kostak (Application rate) –  Rs. 850
24/06/17 Grey Market Premium Rs. 90-92,  Kostak (Application rate) –  Rs. 850

Subscription: AU Small Finance Bank IPO  ( x times)
 QIBNIIRetailTotal
Day 378.77 143.51 3.52 53.6
Day 2    2.47  0.71.071.36
Day 1  0.080.320.18

Complete Anchor List 

AU Small Finance Bank  has raised Rs 563 crore from anchor investors ahead of its  initial public offer which opens on Wednesday. The company allotted 1.57 crore shares to 34 anchor investors, Government of Singapore, Kuwait Investment Authority, BlackRock, Nomura Singapore, HSBC Global Investment Funds – Indian Equity and Wells Fargo Emerging Markets Equity Fund, Motilal Oswal, BNP Paribas, ICICI Prudential, Kotak Mutual Fund etc. are among the anchor investors. 
Click here for Complete AU Small Finance Bank Anchor List

Consolidated opinion of Brokerages, Analysts, Business New Paper Reports, Management Views on AU Small Finance Bank IPO .

Aditya Birla Money: “Stock to command rich valuation on the back of strong return
ratios with RoA of 4.5%, RoE of 24% and the visibility of healthy growth (~30%) trajectory over next 2-3 years. AUSFB is amongst the very few lenders that enjoy such superior return ratios while providing secured credit which is commendable. Owing to secured lending, AUSFB is better positioned for transition to SFB as compared to peers. Having strong retail asset book, it shall allow AUSFB to build liabilities with strategic focus on sticky customers and aid in better cross-selling opportunities. At higher price band of 358, it is valued at 31.2x TTM adj. EPS and 5.3x TTM P/ABV. Recommend SUBSCRIBE rating for listing 
gains as well as for long term capital gains.”


Nirmal Bang:While the trailing valuation of 5.1x FY17 P/BV may look expensive after taking a first look, this is a unique model with no exact peers. An important distinguishing factor is that AUSFB is a small finance bank and can raise the deposits to keep its cost of funds low, unlike its peers. Therefore, in the long run the SFB model should do better compared to the NBFC model.”

Reliance Securities:
Evolution from a DSA of HDFC Bank to a significant retail lending NBFC and outstanding performance track record suggest that AU SFB has the potential to emerge as one of the most successful SFBs in next 3-5 years. Hence, we expect AU SFB to attract higher valuation premium compared to its peers led by sustainability of high growth in diversified business amid lower assets quality risk. At the upper price band of Rs358, AU SFB market capitalization would stand at Rs 102bn, which gives it price-to-book multiple of 5.1x on Mar’17 book value and P/E of 31.2x on FY17 profit. We recommend SUBSCRIBE to the Issue, as it provides favorable investment opportunity for the long-term investors.”

Angel Broking: “AU Small Finance Bank (AUSFB) was one of the ten NBFCs which had obtained approvals from RBI for setting up a small finance bank (SFB). As a NBFC, it has a history of successfully serving the low & middle income individuals and businesses having limited or no access to the formal banking and finance systems Outlook & Valuation: At the upper price band of `358 the issue is offered at 5.1x its FY2017 BV. However, AU has reported a strong 48% PAT CAGR over FY2013-17, and we believe it has the potential to deliver 30% PAT CAGR over FY2017-19, and based on our quick estimates on FY2019 BV, the issue is offered at 3.5x. While the issue is offered at premium valuations, we believe the valuation is justified given the historical track record and strong growth potential the SFB offers. Hence, we recommend SUBSCRIBE to the issue.”


Prabhudas Lilladher:
“At the upper end of the band at Rs 358 AU SFB will trade at 5.3x FY17 P/ABV of Rs 68 which we believe is fully valued with little scope of return in the near term. We recommend investors to subscribe to the issue with a long term investment objective.” 

Sushil Finance: “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”

India Infoline “As 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.”

GEPL Capital:  “AU Small Finance Bank Ltd. stands to gain from operating leverage. At a P/B of 5.09xs of FY17 BV. We believe that AU Small Finance Bank Ltd. demands a discount to its domestic peers. We assign a Subscribe rating to the IPO.

Ashika Direct
: ” The company will continue to focus on its go-to-market approach to increase its customer base, implement customer reach programs and will encourage all its NBFC customers to open bank accounts with it. Also, the company focuses on building long-term relationships with its customers and addresses specific requirements in a particular region and has developed a strong connection with its customers over 20 years of its operations. Through its SFB offerings, the company will seek to further strengthen its relationship with its NBFC customers and attract new customers. The company has generated Return on Equity (RoE) of more than 20% every year since FY15 and has a Core EBITDA Margin of more than 70% in last five years. Moreover, diversified product portfolio and revenue streams along with significant presence in rural and semi-urban markets with focus on low and middle income customers makes it a value play and a long term prospect.

GEPL Capital: ““AU Small Finance Bank stands to gain from operating leverage. At a P/E of 27.34x of FY17 EPS. We believe that it demands a discount to its domestic peers. We assign a Subscribe rating to the IPO.”


ANTIQUE Stock Broking Ltd. :“Given the strong presence in niche customer segments, AU SFB’s profitability will be remain superior to most conventional banks. Despite the migration to SFB, we estimate that AU will report trough RoEs of ~17% in FY18 this will recover to 20% by FY20. This is significantly better than its listed peers which are currently reporting single digit RoEs. As such, valuations at 3.2x book on FY20 are reasonable, and investors can expect strong upside over the next few years.”

SMC : “Rating 2.5/5Au Small Finance Bank Limited is a small finance bank (SFB) that 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 has received a license from the Reserve Bank of India to set up an SFB on December 20, 2016, it is the only NBFC categorized as an asset finance company to obtain such license. Investors may consider investment in the issue.”

Capital Market: “AU Small Finance Bank’s EPS for FY2017 works out to Rs 11.46 (excluding exceptional gains). The scrip is offered at P/E multiple of 31 times FY2017 EPS at the lower price band of Rs 355 per share and 31.2 times FY2017 EPS at the higher price band of Rs 358 per share. The book value (BV) of AU Small Finance Bank is Rs 70.34, while adjusted book value (ABV) stood at 67.91 end March 2017. P/BV works out to 5.1 times and P/ABV works out to 5.3 times at upper price band of Rs 358 per share. The scrip is offered at significantly higher valuation than the other listed small finance banks, as Equitas Holdings trading at P/BV of 2.34 times and Ujjivan Financial Services at 2.15 times. The ratio is also higher than some of the leading private banks like IndusInd Bank trading at P/BV of 4.32 times and RBL Bank at 4.43 times.”

SP Tulsiyan website: “While it will be futile to compare AU with banking heavy-weights, such as Indusind, Kotak, Yes or even HDFC Bank, in existence for so many years while AU is a new entrant yet to prove its mettle as a bank, different set of RBI regulations govern the two – take for example, priority sector lending at 40% versus 75% for small finance banks. The above four banks are all currently ruling at PBV multiples of less than 4 times, FY18 book. Despite all the investor fancy and spectacular run-up in share price, even RBL Bank, with Rs. 49,000 crore balance sheet, is ruling at PBV of 3.8x on FY18E BVPS, which fades away AU’s pricey valuation.In short, by all parameters, AU Small Finance Bank IPO is expensively priced..”