AU Small Finance Bank has demonstrated an impressive performance, achieving a remarkable 54% CAGR in deposits and a 34% CAGR in loans from FY18 to FY23. This growth has solidified its position not only within the Small Finance Bank (SFB) sector but also across the broader mid-cap banking landscape. The bank’s success can be attributed to its strategic expansion of new product offerings, a broader geographical footprint, substantial investments in cutting-edge technology, and a determined focus on physical expansion. These factors are expected to provide substantial support for sustained long-term growth.
Our projections indicate that the bank is poised to maintain its industry-leading loan growth at a compound annual growth rate of approximately 28% from FY23 to FY25E. However, it is important to note that there might be some short-term margin pressure that could impact stock performance. Despite this, we anticipate a considerable acceleration in earnings growth starting from FY25, with a projected 35% year-on-year increase after a 22% year-on-year growth in FY24. This performance trajectory is anticipated to lead to a RoA and RoE of 1.9% and 17% respectively.
AUBNAK has reported a robust 29% growth in loans during Q1 of FY24, in contrast to 48% CAGR achieved over the five-year period spanning from FY17 to FY22. The dominance of retail loans persists, constituting a substantial 79% share. The bank is strategically committed to diversifying its loan portfolio, as evidenced by the notable traction observed in Home Loans. The wholesale loan segment has also demonstrated a commendable growth trajectory. Bank’s management to fortifying pillars of its business operations, with emphasis on Vehicle Loans and MSME sectors, while simultaneously expanding into segments like Housing Loans, Gold Loans, Credit Cards, and Consumer Durable Financing. AUBNAK has made good investments in its operational framework, in addition to broadening its geographical footprint. This twin approach is anticipated to facilitate sustained business expansion while concurrently mitigating geographical risk concentration.