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Wheels in motion!
Deepening existing product lines; scaling up the newer ones
* AUBANK is focused on scaling up its key business lines, Vehicle & MSME loans, while it is equally focused on nurturing new segments (housing loans, gold loans, consumer durable financing, etc.). Additionally, mobilization of retail deposits through digital initiatives is also gaining traction, which should help it sustain growth momentum. It aims to achieve loan book of INR700b and customer base of ~5m by FY22.
* Amidst a challenging environment, AUBANK has increased focus on used car financing, which is likely to benefit from faster shift towards organized players. Currently, the used car market is already 1.2x of the new car market (in volume terms).
* The concentration in the top-20 advances/exposures improved by 262bp/135bp YoY to 5.7%/8.3% in FY19. On the liability side, concentration of the top-20 depositors has decreased from 41% in FY18 to 25% in FY19.
* AUBANK has made strong progress on the business growth front, and alongside, has made adequate investments to support the growth momentum. We expect business growth to remain robust while stability in margins and cost-control should support earnings over the medium term. Maintain Buy with PT of INR750 (4.7x FY21E BV).
Deepening existing product lines; scaling into new retail segments
AUBANK has made strong progress in expanding its AUMs to INR242.5b, in which the retail mix stands at ~82%. The retail loan growth is largely driven by the wheels and the MSME segments, which constitute ~91% of the retail segmental loans.
* In vehicle financing, the bank has started focusing on used car financing as the used car market in India is 1.2x of the new car market. The used car industry is expected to reach 6.7-7.2m by FY22. Overall, the bank has a used vehicle portfolio of INR18.4b (18% of total vehicles).
* The bank is scaling up into new retail products like gold loans, home loans, 2Ws, Agri-SME and consumer finance loans and has a comprehensive portfolio of 27 products and services.
Liability accretion remains strong; granularity + productivity improving
AUBANK has a deposit base of INR194b with CASA ratio of ~21%. The proportion of deposits to overall funding has improved to 69% – one of the best amongst the small finance bank (SFB) space. Also, the proportion of retail SA/TD improved to 89%/30% in FY19 from 73%/22% in FY18. In terms of branch productivity, the SA/CASA per branch has improved by INR47m/INR70m to INR61m/INR88m, indicating higher productivity and operational efficiency at the branch level. The total number of deposit customers increased 94% YoY to ~1m.
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