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Breaking the piggy bank

Amidst disruption caused by coronavirus, AU Small Finance insiders offload shares worth Rs.2.43 billion

The Rajasthan-based NBFC-turned bank was having a great run in FY20 until the third quarter. Its stock rallied almost 10% the day it reported its Q3 numbers with 2x net profit as compared to the previous quarter. The stock even hit an all-time high of Rs.1,218 in the first week of March. But that rally was cut short when it announced its Q4FY20 numbers that showed the disruption coronavirus had caused. It has since fallen more than 65% to trade at Rs.400 on May 22, just above its 52-week low of Rs.380.

 

The bank that focuses on retail and SME borrowers had to set aside higher provision towards SMA accounts as directed by the RBI, which dented its profit growth by 35% compared to the previous quarter. But the company’s asset quality slightly improved, with gross NPA and net NPA falling from 1.88% and 1.01% in the third quarter to 1.68% and 0.81%, respectively. Emkay Securities analysts state, “it was partially due to moratorium on overdue loans”, which according to the bank, was availed by 29% of its customers or 25% in value terms. Even on a year-on-year basis, the bank has performed well with 42% growth in net interest income and 56% increase in net profit.

 

Factoring all that in, Motilal Oswal Securities analysts mentioned in their report post Q4FY20 that they expect loan growth trend to remain soft in FY21 while credit cost will increase “as we build in higher slippages, driving an 18%/10% cut in our FY21/FY22 earnings.” They have maintained a ‘buy’ rating on the stock but revised their target lower from Rs.800 to Rs.675 at 3.5x FY22 estimated book value. Similarly, HDFC Securities is also optimistic about the company due to “dwindling competition from NBFCs, high CRAR, and a credible execution track record.” They have a target of Rs.549 with an ‘add’ stance.

 

But it is important to note that these reports were published before Bharti Airtel promoter Sunil Mittal’s SBM Holdings and Government of Singapore bought 5.22 million shares in a block deal worth Rs.2.15 billion at Rs.414.60/share, from the bank’s promoter Chirinjee Lal Agarwal between May 15 and May 18. After the latest sale to raise liquidity, total promoter holding now stands at 29.13%. In addition to this, other promoters and directors have also sold shares worth Rs.278 million in the month of May. This includes Rs.130.2 million worth shares offloaded by Manoj Tibrewal, group head, HR, distribution and marketing, AU Small Finance Bank. He still holds 0.33% stake in the company, which is worth Rs.431 million.

 

Mutual funds have also cut their stake in Q4FY20, from 11.69% to 11.06%. While Kotak MF has reduced its holding from 4.04% in December 2019 to 3.91% in March 2020, SBI MF’s stake has fallen from 1.82% to 1.26%. But foreign investors increased their stake from 26.75% to 28.69% with Nomura India Investment Fund holding 2.95%.