AU SFB shares in bear grip but MF holding hits record high in Q4!

AU Small Finance Bank Ltd (AU SFB) shares are in the bear grip, falling 23 per cent from January highs but mutual funds (MFs) are not much concerned. They in fact have used the opportunity to take their holding in the SFB to a fresh record high in the March quarter, latest shareholding pattern showed.

The institutional class upped its holding in the small finance bank for the third straight quarter to 14.53 per cent in the March quarter, up 2.82 percentage points over 11.71 per cent in the December quarter. This was the highest stake that the domestic funds have had in AU SFB in any quarter since the company's listing in 2017.

MFs have been raising stake in the SFB since the September quarter. They bought AU SFB shares, as foreign portfolio investor (FPI) holding in the SFB fell below the 40-per cent mark.

At Thursday's closing of Rs 622.90, the stock is off 23.38 per cent from its 52-week high of Rs 813 hit on January 8.

In a filing to BSE earlier today, AU SFB announced a 25 per cent jump in gross advances at Rs 73,999 crore for the March quarter from Rs 59,158 crore in the same quarter last year. On a sequential basis, advances grew 9 per cent over Rs 67,624 crore in the December quarter. Total deposits were up 26 per cent at Rs 87,182 crore over Rs 69,365 crore YoY, and up 9 per cent over Rs 80,120 crore in the December quarer.

AU SFB recently hosted an analyst meet on March 18 to give an update on merger with Fincare SFB, and the business roadmap till FY27E. Analysts noted the bank has been able to secure regulatory approvals at a much faster pace, while the merger will be effective from Apr 1. The management highlighted that focus would be on liability-driven asset growth strategy (at 23-25 per cent), while delivering higher RoA post-merger at 1.8 per cent by FY27E (from 1.5 per cent in 3QFY24), achieved mainly due to change in portfolio mix toward high-yielding assets. The bank, Emkay Global suggested, would like to cap the unsecured book at 15-20 per cent of AUM, including MFI at 10 per cent, while it has guided for higher LLP on MFI book to shore-up specific PCR and contingent buffers.

"We believe, that managing HR/tech integration with Fincare and MFI portfolio amid rising asset quality risk (as visible in Fincare’s 3Q results) will be an arduous task. Separately, stress is on the rise in AU’s own card and VF portfolio, which coupled with integration cost and continued operational burn in new businesses/phygital footprint expansion could restrict near-medium term earnings. We retain REDUCE rating with a revised target of Rs 600," it said.

As per publicly available data with Trendlyne, the AU SFB shares have an average target price of Rs 738, which suggests 19 per cent potential upside for the stock.