Published on 28/06/2017 5:54:09 PM | Source: Religare Securities Ltd

IPO Note Au Small Finance Bank Ltd - Religare Sec

Posted in IPO Reports | #IPO #NBFC #Religare Securities Ltd #Au Small Finance Bank Ltd


About the Company

AU Small Finance Bank (AUSFB) is a small finance bank that has recently transitioned from a prominent, retail focused NBFC primarily serving low & middle income individuals and businesses that have limited or no access to formal banking and finance channels. It commenced operations in 1996, run by a First Generation Entrepreneur, Promoter & MD, Mr. Sanjay Agarwal. AUSFB obtained Small Finance Bank (SFB) license in December 2016 and commenced SFB operations in April 2017. It is present across 10 states and 1 union territory with 301 branches and 8,515 employees including contract personnel.

The company operates in Vehicle Finance (~50%), MSME (~30%) and SME Loans (~20%). In addition to this, it’s asset product offerings include working capital facilities, gold loans, agriculture related term loans, Kisan credit cards for farmers and loans against securities.

AUM size as on FY17 stood at Rs 10,734 cr. The average ticket size of vehicle finance loans was Rs 3.4 lakh, MSME loans Rs 10.8 lakh and SME loans Rs 2.2 cr. Asset quality was stable with GNPAs of 1.6%.

 

Objects of the Issue

* 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

* Listing of the Equity Shares will enhance the company’s visibility and brand and provide liquidity to its existing shareholders

 

Valuation

AUSFB’s AUM has grown at a CAGR of 30% over FY13-17 on account of sector push such as financial inclusion drive and low credit penetration in certain areas of the country. These growth drivers are expected to persist over the longer term. However, compulsory compliance with maintaining cash reserve ratio and statutory liquidity ratio may impact loan book growth and NIMs in the near-term.

At the upper end of the band, AUSFB is valued at ~5.1x FY17 P/BV which appears stretched compared to other SFBs viz. Ujjivan and Equitas which are at ~2.2-2.4x P/BV. However, AUSFB is the only asset backed NBFC to get an SFB license, the rest being micro finance entities. Out of the total loan book, ~99% is secured either by vehicles financed or immovable properties or receivables of the business-unit financed, which provides an extra cushion of safety and investor comfort when compared to unsecured lending.

Further, AUSFB has successfully diversified its loan book composition that has helped it reduce concentration risk and improve upon its asset quality. Vehicle loans mix has reduced from 79% in FY13 to 50% in FY17, while at the same time, share of highest NIMs segment (~10%), which is MSME loans, has increased from 15% to 30%. While the return ratios are likely to moderate in the near term as AUSFB transforms into SFB, they are expected to stabilize gradually in the medium term.

 

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