AU SF Bank IPO – Transformation Required, Valuations Stretched

  • Report dated 26th June
  • IPO Open 28-30th June at Rs. 355-358
  • Valuations: P/E 31 times TTM, P/B 5.1 times 
  • Large Cap: Rs. 10,000 cr. Mkt cap
  • Industry – Small Finance Bank
  • Advice: AVOID
  • Overview: AUB is a Jaipur based small finance bank (SFB) which operates in 3 business lines: vehicle finance; MSME and SME loans. They used to be an asset oriented NBFC earlier, and commenced SFB operations in Apr 2017 and launched new retail and rural focused loan services.
  • Revenues and profit for FY17 were Rs. 1,431 cr. and Rs. 329 cr. It has 8,515 full time employees. AUB’s revenues, NII and PAT grew at 36.4%, 43.9% and 47.5% CAGR in 5 years. The gross AUM and disbursements of AUB for FY17 stood at 10,734 cr. and 6,730 cr. resp.
  • AUB has a massive task ahead of itself to rebuild itself within 3 years as a priority sector SFB institution. This involves setting up deposits infra, giving MFI loans which are high volume low value and reaching out into the villages. PSL (Priority Sector Loans) to non PSL is 35:65% today and has to become 75:25% in 3 years. These changes are costly, time consuming and involve staff retraining.
  • At a P/B of 5.09 times TTM FY17, the valuations of the IPO are high and aggressive. Further the book value per share rose sharply in FY17 due to the sales of subsidiaries and associates, and BVPS growth may not sustain operationally. Thus on the P/B parameter, AUB is overvalued.
  • Risks: 1) Regional concentration: As of FY17 54% of the AUM was in the state of Rajasthan 2) Business concentration: Vehicle loans constitute 50% of AUM, making AUB dependent on this sector 3) The recent farm loan waivers by govts. may affect the credit behavior of farmers.

Opinion: This IPO offering is an AVOID, investors can pass up this opportunity and instead look to pick up the shares at more reasonable levels in future.

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See other useful BFSI reports:

  1. PNB Housing Finance IPO: A Transformed Lender
  2. RBL Bank IPO – A Grand Revival
  3. New Banks: Big Changes in Small Change
  4. Equitas IPO  – Leader in Small Finance Banks
  5. Announcement – SEBI approval as a Research Analyst


This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no stake ownership or known financial interests in AUB or any group company. Punit Jain does intend to apply for this IPO in the Retail category. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at