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AU Small Finance Bank IPO review (Apply)

Review By Dilip Davda on Jun 20, 2017

AU Small Finance Bank Ltd. (erstwhile known as AU Financiers Ltd) (AUSFB) is a NBFC converted into Small Finance Bank. It primarily served low and middle-income individuals and businesses that have limited or no access to formal banking and finance channels. In fact this group has created a niche place with purely asset based financing and has thus carved a new path of growth. It was one of the 10 new small bank licensees and the 7th one to go in operation as small finance bank. In fact, it converted itself from NBFC to SFB status on 19th April 2017 and post this change only, it is tapping the market. 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. Post commencing its SFB business, it has expanded and strengthened business model to offer a diverse suite of banking products and services byleveraging its asset-based lending strengths, NBFC customer base and cost efficient, technology driven hub-and spoke branch operating model to successfully operate SFB. In addition to its vehicle finance, MSME and SME offerings, AUSFB’s asset product offerings include working capital facilities, gold loans, agriculture related term loans, Kisan credit cards for farmers and loans against securities. Its liability product offerings include current accounts, savings accounts, term deposits, recurring deposits and collections and payments solutions for MSME and SME customers.

Post transitioning to an SFB model, it is now poised for significant growth potential and aims to be a retail focused, preferred trusted SFB offering integrated and tailored solutions to customers. Its vehicle finance business extends loans for the purchase of new and pre-owned vehicles and for refinancing of
vehicles, which are primarily used for revenue generating activities. For the financial year 2017, the average ticket size of AUSFB’s vehicle finance loans was Rs. 0.34 million. Loan tenures for its vehicle finance loans are up to five years. Bank’s MSME loans business extends loans to MSMEs primarily for business expansion, working capital and the purchase of equipment. For the financial year 2017, the average ticket size of MSME loans was Rs. 1.08 million. Loan tenures for its MSME loans are up to 12 years and for SME loans the average ticket size was Rs. 21.92 million with tenures up to 15 years.

AUSFB adopted a strategy of contiguous expansion across regions and as of March 31, 2017, it conducted operations through 301 NBFC branches spread across 10 states and one union territory in India, with significant presence in the states of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh and employed 8,515 personnel serving 280,349 active loan accounts. The credit penetration of Gujarat, Madhya Pradesh and Rajasthan is below average, while the credit penetration of Maharashtra is above average, thus offering us significant growth potential. As of May 31, 2017, AUSFB conducted operations through 269 branches, 121 asset centers, one central processing center and 10 offices. In addition, AUSFB plans to set up an additional 162 branches and seven central processing centers during the financial year 2018.

To meet listing requirements and providing exit route to existing stakeholders, the company is coming out with a maiden IPO of 53422169 equity share of Rs. 10 each via book building route with a price band of Rs. 355-358. Minimum application is to be made for 41 shares and in multiples thereon, thereafter. Through this issue the bank mulls mobilizing Rs. 1896.65-1912.51 crore (on the basis of lower and upper price bands). Issue opens for subscription on 28.06.17 and will close on 30.06.17. It has reserved 1000000 equity shares for eligible employees and the rest is being offer to public with 50% for QIBs, 15% fort HNIs and 35% for retail category. Post allotment, shares will be listed on BSE and NSE. BRLMs to this issue are ICICI Securities Ltd, HDFC Bank Ltd, Motilal Oswal Investment Advisors Ltd. and Citigroup Global Markets India Pvt Ltd. Link Intime India Pvt Ltd is the registrar to the issue. After raising initial equity at par from inception till 2008, it issued further equity in a price range of Rs. 13.35 to Rs. 345 per share and has also issued bonus in the ratio of 5 shares for every 1 share held in October 2016. Post issue its paid up equity capital remains at the same level of Rs. 284.25 cr.

On performance front, the bank has posted total income/net profits of Rs. 571.32 cr. / Rs. 72.54 cr. (FY14), Rs. 689.41 cr. / Rs. 139.45 cr. (FY15), Rs. 1051.95 cr. / Rs. 247.15 cr. (FY16) and Rs. 1430.52 cr. / Rs. 842.71 cr. (FY17). FY 2017 earnings included exception income of Rs. 670.35 cr.(at gross level) and its Net NPA stood at 1.05% (up from 0.38% for the previous fiscal end). Its fully diluted EPS as on 31.03.2017 stood at Rs. 30.36 (with exceptional income) and Rs. 11.74 (without exceptional income). On without exceptional income basis, its asking price (based on upper price band of Rs. 358) is at a P/E of 30 plus and P/BV of 5.08. Industry average P/E is 30.16. Its last three fiscal’s average RoNW is 32.34%. Thus issue is fully priced. For the last five fiscals AUSFB has posted CAGR of 30% I AUM, 46% in Net worth, and 47% in PAT.

On merchant banker’s front, 4 BRLMs associated with the offer have handled 37 public issues in past three years out of which 13 issues closed below the issue price on the listing date.

Conclusion: Even though issue appears fully priced, investors may consider investment for short to long term in this niche player that is poised for better prospects ahead.


Conclusion / Investment Strategy

Even though issue appears fully priced, investors may consider investment for short to long term in this niche player that is poised for better prospects ahead.

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on Jun 20, 2017

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Au Financiers IPO FAQs

  1. 1. Why Au Financiers IPO?

    The initial public offer (IPO) of Au Financiers (India) Limited offers an early investment opportunity in Au Financiers (India) Limited. A stock market investor can buy Au Financiers IPO shares by applying in IPO before Au Financiers (India) Limited shares get listed at the stock exchanges. An investor could invest in Au Financiers IPO for short term listing gain or a long term.

  2. 2. How is Au Financiers IPO?

    Read the Au Financiers IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Au Financiers IPO what should investors do?

    Au Financiers IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Au Financiers IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Au Financiers IPO good?

    Our recommendation for Au Financiers IPO is to subscribe.

  5. 5. Is Au Financiers IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe to the Au Financiers IPO.

  6. 6. When will Au Financiers IPO allotment status?

    The Au Financiers IPO allotment status will be available on or around Jul 5, 2017. The allotted shares will be credited in demat account by Jul 7, 2017. Visit Au Financiers IPO allotment status to check.

  7. 7. When will Au Financiers IPO list?

    The Au Financiers IPO will list on Monday, July 10, 2017, at BSE, NSE.

2 Comments

2. veeshal  Jun 28, 2017 7:02:41 PM
apply
it means foreign holding is already 49 percent.which means foreigners are interested in this bank.Its a profit making bank.Other psu banks are in huge losses.
1. Chirag Modi  Jun 28, 2017 11:37:28 AM
Shall we apply for AU small finance bank IPO because RBI has declared this bank under caution list last day?
Kindly guide us..
Thanks
1.1. DaU  Jun 28, 2017 12:49:36 PM
What does "caution list last day" mean?