AU Small Finance

AU Small Finance Bank initiated its operations in 1996 as retail focused non-banking finance company (NBFC) in Jaipur serving low and middle-income individuals and businesses having limited or no access to formal banking and finance channels. The company received a license from the Reserve Bank of India to set up a Small Finance Bank (SFB) along with nine other such entities on 30 December 2016 and recently commenced SFB operations with effect from 19 April 2017.

In 2005, the company became a commercial associate of HDFC Bank for originating and servicing vehicle loans and such relationship assisted it in the implementation of various processes and systems. The company expanded its product portfolio to include MSME loans in 2007, housing finance in 2011 (a business which the company have since sold) and SME loans in 2012, to cater to the evolving needs of its customers.

As an NBFC, the company operated in three business lines - vehicle loans, micro, small and medium enterprises (MSMEs) loans, and small and medium enterprises (SMEs) loans. After commencing SFB operations, the company has expanded and strengthened its business model to offer a diverse suite of banking products and services by leveraging asset-based lending strengths, NBFC customer base and cost efficient technology driven hub and spoke branch operating model.

After becoming an SFB, asset product offerings of the bank has expanded to working capital facilities, gold loans, agriculture related term loans, Kisan credit cards for farmers and loans against securities. The bank intends to commence offering unsecured business loans and housing finance loans in FY2018. The liability product offerings include current accounts, savings accounts, term deposits, recurring deposits and collections and payments solutions for MSME and SME customers. The company also intends to commence offering payment wallets and customized prepaid instruments and engage in the sale of third party investment products in FY2018. It aims to become a retail focused, preferred trusted SFB offering integrated and tailored solutions to customers.

The asset quality of the company had remained healthy, but recently showed deterioration with Gross NPA ratio rising to 1.61% in FY2017 from 0.64% in FY2016, on account of tightening of NPA recognition norms to 120 days overdue basis. As per the company, the Gross NPA ratio is higher at 1.9-2% on 90 days overdue basis.

The borrowings of the company stood at Rs 7070.98 crore end March 2017, comprising 50.03% of NCDs, 32.94% of term loans, 6.78% of commercial paper, 4.67% of subordinated debt borrowings, and 5.58% of working capital facilities. The average cost of borrowings has moderated to 10.13% in FY2017 from 12.61% in FY2013. The company has consistently improved margins to 9.67% in FY2017 from 6.82% in FY2013. The company has delivered RoA/RoE (excluding exceptional item) of 3.32% and 22.01% in FY2017. The capital adequacy ratio is strong at 23.21% end March 2017.

The company has a network of 301 NBFC branches (bank has 269 branches, 121 asset centers, one central processing center and 10 offices end May 2017) spread across 10 states and one union territory in India, with significant presence in the states of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh end March 2017. The employee strength stood at 8515 personnel serving 280349 active loan accounts. It plans to set up an additional 162 bank branches and seven central processing centers in FY2018.

Sanjay Agarwal is the promoter managing director and CEO of the bank, who is a first generation entrepreneur. Uttam Tibrewal is the Whole-time Director of our Company. Deepak Jain is the chief financial officer of our Company. Krishan Kant Rathi and Jyoti Ishwar Chandra Narang are Independent Director of the company.

Loan Products

Vehicle loans- Loans are provided for the purchase of new and pre-owned vehicles and for refinancing of vehicles, which are primarily used for revenue generating activities. The gross AUM of vehicle finance segment has grown at CAGR of 16% for last four years to touch Rs 5395.68 crore end March 2017, constituting 50.3% of the overall AUM. The average ticket size of vehicle finance loans was Rs 3.4 lakh, while loan tenures are up to five years. Vehicle loans are secured by the vehicles the company finances.

MSME loans- MSME loans are provided primarily for business expansion, working capital and the purchase of equipment. The gross AUM of MSME loans segment has increased at a CAGR of 55% for a period of four years to touch Rs 3216.34 crore, accounting for 30% of Gross AUM end March 2017. The average ticket size of MSME loans was Rs 10.8 lakh, while loan tenure is up to 12 years.

SME loans- The SME loans are extended to several types of small and medium sized businesses. Gross AUM for SME loans grew at a CAGR of 78% for a period of four years to Rs 2121.84 crore, cornering 19.8% of Gross AUM end March 2017. The average ticket size of SME loans was Rs 2.19 crore. Loan tenures for SME loans are up to 15 years. MSME and SME loans are secured by immoveable property or receivables.


Leverage existing capabilities and customer base: The company intend to leverage capabilities as a former asset finance NBFC including branch network, customer base, technology driven, low cost hub-and-spoke model and local know-how in the geographical areas in which the company operate for SFB operations.

Grow branch network: The company intends to continue expanding branch network to drive greater and deeper penetration in the western and northern states of India in which the company operate. The company intends to gradually open 162 additional branches in FY2018 to reach 431 branches and 121 asset centers at the end of March 2018.

Provide a comprehensive suite of banking services: The company has expanded beyond previous business lines to offer additional asset products and intend to provide unsecured business loans and housing finance loans in FY2018. The company also intend to sell mutual funds, insurance and risk management products and provide financial advisory services, subject to receipt of requisite approvals from regulatory authorities.

Leverage technology to grow business: The company has upgraded, and intend to continue to upgrade technology systems with automated, digitized and other technology-enabled platforms and tools, to strengthen banking and financing initiatives and derive greater operational, cost and management efficiencies.

Enhance brand presence: The company seeks to leverage and enhance brand to build presence in the banking sector and develop new customer and industry relationships beyond our existing business lines.

Offer and the objects

The issue comprises offer for sale (OFS) of up to 53,422,169 equity shares by the promoters and other investors. The entire proceeds from the OFS will be paid to the selling shareholders. The OFS includes sale of equity share of up to 9,000,000 equity shares by promoters and promoters group [Sanjay Agarwal (2,494,769), Jyoti Agarwal (2,363,712), Shakuntala Agarwal (2,274,326), Chiranji Lal Agarwal (1,290,449 ) and MYS Holdings (576,744)] and 44,422,169 equity shares by other investors [Redwood (14,800,000), IFC (7,572,169), Labh Investments (11,250,000), Ourea Holdings (10,365,368), and Kedaara capital (434,632)].

The OFS will mop up proceeds of Rs 1896.49 crore at the lower price band of Rs 355 per share (face value Rs 10 per share) and Rs 1912.51 crore at the upper band of Rs 358 per share. Post-IPO, the promoters and promoters group stake will reduce to 32.87% from 36.03%.

The minimum bid lot is 41 equity shares and in multiples of 100 equity shares thereafter. The issue is to be made through a 100% book building process and will open on 28 June 2017 and will close on 30 June 2017. The issue includes a reservation of one lakh equity shares for subscription by eligible employees.


The company has relatively diversified product portfolio and revenue streams

The company has a healthy customer base of 280,349 active loan accounts end March 2017 and developed strong relationships with customers through in-person contact by addressing their financial needs. The company has taken various steps to strengthen customer relationships such as hiring local personnel, establishing relationships with vehicle manufacturers and dealers, setting up call centers and conducting referral and other programs

The company has over 20 years of operating experience in rural and semi-urban markets of India with 146 of 301 NBFC branches located in such markets. A large segment of Indias rural and semi-urban population is currently unserved and underserved by formal financial institutions.

The Gross Asset under Management (AUM) has increased at strong CAGR of 30% for four year period to Rs 10733.86 crore end March 2017. The disbursements have also jumped at 29% CAGR to Rs 6730.47 crore in FY2017. About 98.99% of total receivables under financing activity are secured.

Total income has grown at a four year CAGR of 36% to Rs 1430.52 crore in FY2017 and profit before exceptional item has grown at a four year CAGR of 49% to Rs 504.58 crore in FY2017.


The conversion to SFB poses challenges such as increase in overall funding requirement to meet CRR and SLR requirements. The negative carry-on CRR and SLR may hurt the net interest margins of the SFB. The operating expenses may rise on account of introduction of new products, cost of deposit mobilization, recruitment and trainings, up-gradation of systems and branch infrastructure in initial years.

Of the 269 branches and 121 asset centers, about 189 branches and 89 asset centers of the company are located in western India in the states of Rajasthan, Gujarat and Maharashtra end March 2017. About 79.29% of Gross AUM was located in such states, with Rajasthan accounting for 53.78% of Gross AUM. Any adverse developments in this region could have an adverse effect on business.

An increase in Gross NPA in FY2017 was primarily on account of the change in the period of classification of loans as an NPA, from 150 days past due to 120 days past due in accordance with guidelines issued by the RBI. As an SFB, this period will reduce further to 90 days past due, which may result in a further increase in Gross NPA, which would increase provisioning requirements.

Farm loan waivers, poor monsoon, natural calamities etc can spoil loan repayment capacity and willingness in rural areas. Scrip prices of rural focused players tend to get adversely affected by such events.


The Company will not receive any proceeds from the Offer, while Promoters and Promoter Group are also selling shares in the Offer.

AU Small Finance Banks EPS for FY2017 works out to Rs 11.46 (excluding exceptional gains). The scrip is offered at P/E multiple of 31 times FY2017 EPS at the lower price band of Rs 355 per share and 31.2 times FY2017 EPS at the higher price band of Rs 358 per share.

The book value (BV) of AU Small Finance Bank is Rs 70.34, while adjusted book value (ABV) stood at 67.91 end March 2017. P/BV works out to 5.1 times and P/ABV works out to 5.3 times at upper price band of Rs 358 per share.

The scrip is offered at significantly higher valuation than the other listed small finance banks, as Equitas Holdings trading at P/BV of 2.34 times and Ujjivan Financial Services at 2.15 times. The ratio is also higher than some of the leading private banks like IndusInd Bank trading at P/BV of 4.32 times and RBL Bank at 4.43 times.

AU Small Finance Bank : Issue highlights
Offer for Sale Offer size (in Rs crore)
- On lower price band1896.49
- On upper price band1912.51
Offer size (in no. of shares )5.34 crore
Price band (Rs)*355-358
Post issue capital (Rs crore)
- On upper price band284.25
- On lower price band284.25
Post-issue Promoter & Group shareholding (%)32.9
Issue open date28/06/2017
Issue closed date30/06/2017
Rating 41/100

AU Small Finance Bank : Financials

Particulars1303 (12)1403 (12)1503 (12)1603 (12)1703 (12)
Income from Operations410.66565.51687.021046.931416.99
Other Income2.435.812.395.0213.53
Total Income413.08571.32689.411051.951430.52
Interest Expenses197.18287.56281.97395.25500.33
Other Expenses93.54110.10144.96245.25343.15
Gross Profit122.36173.66262.47411.45587.04
Provisions and Contingencies16.7860.7248.6525.6876.67
Profit before EI102.67109.65207.31377.24504.58
Exceptional Item (EI)
Profit before Tax 102.67109.65207.31377.241174.93
Provision for Tax33.3137.1167.86130.09332.22
Profit after Tax 69.3672.54139.45247.15842.71
* Annualised on current equity of Rs 284.25 crore, Face value Rs 10/- Figures in Rs crore
* EPS excluding Exceptional Item
Source: Capitaline Databases

AU Small Finance Bank : Key figures

1303 (12)1403 (12)1503 (12)1603 (12)1703 (12)
Total Assets3,112.812,958.593,979.906,273.019,817.64
Gross AUM3,704.324,449.015,567.718,221.2810,733.86
Gross AUM Growth45.02%20.10%25.14%47.66%30.56%
Vehicle finance2930.603115.293146.294174.485395.68
MSME loans561.37910.271375.582217.603216.34
SME loans212.36423.461045.841829.212121.84
Average Gross AUM3,129.344,076.675,008.366,894.509,477.57
Securitized AUM1,861.161,992.962,163.752,600.484,343.88
Net AUM1,843.162,456.053,403.965,620.816,389.98
Disbursement Growth17.05%10.13%25.79%66.37%19.78%
Vehicle finance1974.161677.461726.122898.193543.78
MSME loans345.38517.07744.451314.261704.00
SME loans119.28490.50906.951406.781482.69
Operating Expense / Average Gross AUM3.04%2.73%2.98%3.67%3.66%
Credit Cost / Average Gross AUM0.58%1.54%1.02%0.39%0.83%
Gross NPA9.9231.2032.6537.06107.23
Gross NPA Ratio0.53%1.23%0.92%0.64%1.61%
Net NPA4.9615.6015.4922.1569.34
Net NPA Ratio0.27%0.62%0.44%0.38%1.05%
Net Worth441.86597.75766.451,000.671,999.56
Average Net Worth411.76519.81682.10883.561,500.11
Total Borrowings2,482.072,130.052,878.314,782.627,070.98
Average Borrowings1,568.192,306.062,504.183,830.465,926.80
Return on Average Gross AUM2.22%1.78%2.78%3.58%8.89%
Return on Average Net Worth16.84%13.96%20.44%27.97%56.18
Average Borrowings / Average Net Worth3.814.443.674.343.95
Average Net worth/Average Gross AUM13.16%12.75%13.62%12.82%15.83%
Net Assets Value per equity share18.223.0328.9837.8370.34
Number of branches177220231291301
Number of active loan accounts146277175531189175225713280349
Number of employees2,2662,7163,5535,0728,515
Yield and Cost of Funds
Average Yield on Gross AUM17.93%17.68%17.48%17.09%16.51%
Average Yield on Disbursement18.11%17.76%17.60%17.24%16.25%
Average Cost of Borrowing12.61%11.98%11.42%10.48%10.13%
Average Cost of Securitization and Assignment10.71%9.86%9.28%9.11%8.72%
Average Cost of Funds11.63%11.15%10.55%10.03%9.62%
Net Interest Margin6.82%6.82%8.09%9.45%9.67%
Capital Adequacy Ratio
CRAR - Tier I capital14.85%15.70%15.79%13.47%21.08%
CRAR - Tier II capital3.48%3.05%1.50%3.44%2.13%
Total CRAR18.33%18.75%17.29%16.91%23.21%

AU Small Finance Bank : Geographical Spread of Gross AUM

1303 (12)1403 (12)1503 (12)1603 (12)1703 (12)
Madhya Pradesh117.38203.56314.12671.121129.59
Himachal Pradesh0.000.943.5814.9337.49
Figures in Rs Crore

AU Small Finance Bank: Selling Shareholders

Selling ShareholdersNumber of Offered SharesPre-Issue Shareholding %Post-Issue Shareholding %
Sanjay Agarwal2,494,76920.5719.70
Jyoti Agarwal2,363,7124.994.16
Shakuntala Agarwal2,274,3264.964.16
Chiranji Lal Agarwal1,290,4492.862.40

AU Small Finance Bank: Peer comparison

RsRsXXRs crore%%%%%
AU Small Finance Bank*11.4670.3431.245.09107341.611.059.673.3222.01
Peer Group
Bajaj Finance*33.67174.641.638.03601941.680.4410.302.2819.13
Sundaram Finance61.52433.525.703.65207351.540.556.202.1814.19
Cholamandalam Investment and Finance46.03276.823.553.92341674.703.209.342.6016.60
RBL Bank11.8115.643.364.43294491.200.643.301.0810.29
IndusInd Bank47.56345.231.344.321130810.930.394.001.8613.89
Equitas Holdings4.6966.0332.882.3471763.531.4710.802.027.14
Ujjivan Financial Services17.114718.532.1563790.280.0312.602.9211.83
* GNPA and NNPA based 4-months overdue basis and others at 3-months overdue basis. PE and PBV based on share prices as on 22 June 2017
Source: All the financial information for listed industry peers mentioned above is on a consolidated basis.

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