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Business News/ Markets / Stock Markets/  AU Small Finance Bank share price up 33% in last three months; should you buy or book profit?
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AU Small Finance Bank share price up 33% in last three months; should you buy or book profit?

The stock has been on a roll for the last three months, rising over 33 per cent against a 10 per cent gain in the BSE Bankex index and a nearly 7 per cent gain in the benchmark Sensex. The March quarter earnings gave a strong impetus to the stock.

AU Small Finance Bank stock appears to have a long-term potential. (Agencies)Premium
AU Small Finance Bank stock appears to have a long-term potential. (Agencies)

Shares of AU Small Finance Bank saw some profit booking after 13 consecutive sessions of gains as they fell over 2 per cent in intraday trade on BSE on Tuesday (May 30). The stock opened over a per cent lower at 779.80 against the previous close of 790.40 and touched intraday highs and lows of 788.05 and 771.10 respectively.

The stock has been on a roll for the last three months, rising over 33 per cent against a 10 per cent gain in the BSE Bankex index and a nearly 7 per cent gain in the benchmark Sensex. In April, this stock rose about 15 per cent and in May, it is up nearly 17 per cent. The stock hit its fresh lifetime high of 794.95 on May 29.

The March quarter earnings gave a strong impetus to the stock. On April 25, AU Small Finance Bank reported a 22.7 per cent growth in net profit to 424.6 crore in Q4FY23 compared to 346.07 crore in the same quarter last year.

The bank posted healthy growth in interest income, while provisions dipped sharply year-on-year and asset quality improved further.

Net interest income (NII) which is the difference between interest earned and expended, came in at 1,213.20 crore in Q4FY23, increasing by 29.54 per cent from 936.56 crore in Q4 of the previous fiscal.

While the stock appears to have a long-term potential, analysts and brokerage firms believe the near-term positives are fairly priced which leaves little scope for the stock's rise in the short term.

Brokerage firm Motilal Oswal Financial Services, which had maintained a 'buy' call on the stock after the Q4FY23 numbers, has downgraded the AU Small Finance Bank stock to a 'neutral' with a target price of 830 highlighting factors such as moderating loan growth and the rising cost of funds.

The brokerage firm said AU Small Finance Bank’s stock delivered healthy returns over the past two months, particularly after RBI approved the re-appointment of Sanjay Agarwal as MD and CEO of the bank.

The brokerage firm said the near-term growth opportunities of the company are fairly priced after the recent outperformance. However, the brokerage firm sees a robust growth opportunity for the bank in the long term and believes the stock can be a compounder if the bank continues to execute well.

 

As per the estimates of Motilal Oswal, the bank's loan growth is likely to remain steady at a 28 per cent CAGR, driven by sustained traction in key business verticals (vehicle and MSME) and a scale-up in new lending segments such as housing loans, credit cards, etc.

"Given the thrust on physical expansion, continued tech investments and potential NIM compression, we estimate AU Small Finance Bank to deliver RoA (return on assets) of 1.8-1.9 per cent in FY24 and FY25. We expect a 28 per cent earnings CAGR over FY23-25 versus a 37 per cent CAGR over FY18-23," said Motilal Oswal.

"While the management has shown strong execution prowess and we believe the long-term growth story is intact, we find the current risk-reward unattractive after the recent stock performance. We, thus, downgrade the rating to 'neutral' with a target price of 830, premised on 3.7 times FY25E BV (book value) and 24 times FY25E EPS (earnings per share)," the brokerage firm said.

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Technical analysts see the possibility of profit booking and suggest one should wait for some correction before taking a fresh long at the stock.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers observed at the current juncture, the stock is trading way above the 200 daily exponential moving average which is a matter of concern since mean reversion is possible at any given point of time.

"One should immediately book profits and wait for some decent correction," said Patel.

Vaishali Parekh, Vice President - Technical Research at Prabhudas Lilladher pointed out that the stock has witnessed a decent rally in the past two months from 550 to 777 indicating a strong trend and has further upside potential till 800 levels where there is a resistance of the long term trendline zone.

Parekh added that the RSI is attained the highly overbought zone and some consolidation or profit booking can be anticipated.

"The near-term support is around 745-750 zone and after the next pullback, it can achieve the target of 800," said Parekh.

Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 30 May 2023, 11:42 AM IST
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