AU Small Finance’s impressive track record on NPAs tainted due to recent spike in NPAs due to lockdown and stress in SMEs

Action Construction is in a sweet spot with decent pick up in construction activity post Covid pandemic; but valuations are fair
September 7, 2021
Investment in Holding company results in sub-par returns over listed subsidiaries, prime example being Bajaj Finserve which has grossly underperformed Bajaj Finance, its listed subsidiary by a wide margin
September 7, 2021

AU Small Finance Bank is a mid sized micro finance NBFC carved out into a Bank. The transition from NBFC to Bank has been smooth and the past track record of the company is impressive. Focus on vehicle finance and micro / retail lending has proven to be safe and profitable for the company. Presence in semi urban and rural areas is the company’s edge and offers immense scope for expansion. The global pandemic has increased NPAs, but given strong pre-provisioning profits and stake sale in associate company,enabled management to provide for a large part of the NPAs. Despite positives, we have a neutral weight rating due recent spike in NPAs and fair valuations – 27-08-2021 Price: 1292.80 Rating: Neutral Weight Recommendation: Hold

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