AU Small Finance Bank now among the top 20 NBFCs by market capitalisation

The stock has gained 30% after its robust debut on July 10

Within three days of listing, the market capitalisation of AU Small Finance Bank (AU SFB), which got converted from a non-banking finance company to a bank only in April 2017, is larger than PSU banks such as IDBI Bank, Union Bank, Dena Bank and Bank of India, among others, and old private sector banks such as South Indian Bank and Karur Vysya Bank.

Given that only recently it got converted from an NBFC to a bank, if a comparison is made with NBFCs then AU SFB is now among the top 20 NBFCs in terms of market capitalisation, according to data provided by Capitaline and based on data from the BSE.

In m-cap terms, the new bank is now bigger than many housing finance companies (Dewan Housing Finance, Gruh Finance, recently-listed Hudco), big brokerages turned NBFCs (Edelweiss Financial, Motilal Oswal Financial and IIFL Holdings).

The bank had made the third-biggest debut of 2017 on the bourses on July 10, following stellar listings of Avenue Supermarts and CDSL.

Hits new high at ₹698.95

The bank’s stock had listed at a premium of 48 per cent (₹530) and closed up 48.5 per cent (₹531.5) compared to the issue price of ₹358 on the NSE. The stock has further gained 30 per cent in just three trading sessions and is now up 93 per cent since listing. It hit a new high of ₹698.95 on Thursday.

The reason for the huge interest in the stock is due to the strength in the overall markets and huge oversubscription during the IPO. On Thursday, benchmark indices closed at a new high. The BSE IPO index was up 1.97 per cent.

NBFCs in general are in demand as interest rates are expected to be benign going ahead and they will be big beneficiaries. Also, many of the NBFCs are in affordable housing, which offers tremendous opportunity. On Thursday, companies such as Cholamandalam Investment & Finance, Bajaj Finserv, Bajaj Finance, Edelweiss, Bharat Financial Inclusion, LICHFL, Indiabulls Housing Finance, Gruh Finance, L&T Finance Holdings, and M&M Financial Services gained between 1-5 per cent.

At the current market price, AU Small Finance Bank trades at 7.7 times price to FY19 estimated book value, which is much steeper than that of large NBFCs or even banks.

IIFL had an ‘add’ recommendation on July 10 with a fair value of ₹450 based on five times FY19 book value.