AU Bank shares soar 15% after RBI okays reappointment of its MD & CEO

Shares of AU Small Finance Bank surged more than 15 per cent during the early trading session on Thursday after the company's existing managing director (MD) and CEO got regulatory approval for an extension of another three years from the Reserve Bank of India (RBI).

RBI, on Wednesday, approved the reappointment of Sanjay Agarwal as MD and CEO of AU Small Finance Bank for another three years till April 18, 2026. Furthermore, Uttam Tibrewal has been reappointed as Whole Time Director of the bank for the next three years.

Shares of AU Small Finance Bank hit an upper circuit of 10 per cent at the opening tick and extended their gains to 15 per cent to Rs 671.85 on Thursday's early trading session, before giving up their gains partially. However, the stock settled at Rs 580.45 on Wednesday.

The shareholders had already approved the said reappointment on March 9, 2022, the regulatory filing from the lender added.

The recent rise in the shares of AU Small Finance Bank has turned their performance flat in the year 2023 so far, while the stock is up 15 per cent in the last six months. However, the stock is down 6 per cent in the last one year. The stock has jumped 100 per cent in the last five years, while it is up 235 per cent from its Covid-19 lows.

Jaipur-based AU Small Finance Bank is an Indian Small finance bank founded as vehicle finance company AU Financiers in 1996 and converted to a small finance bank in April 2017. It serves low- and middle-income individuals and micro and small businesses that have limited or no access to formal banking and finance channels.
 

"We expect this extension to ensure top management continuity. Besides, it improves visibility on a continuation of its growth journey like in the past – scale with robust asset quality and profitability," said ICICI Securities while upgrading the stock to 'buy' from 'add' earlier with a revised target price of Rs 770, from Rs 700 earlier.

It believes that the recent correction in the stock price was unwarranted and that it is well poised to deliver over 20 per cent advance growth and continue improving the RoE trajectory. As per its 4QFY23 business update, it delivered robust 26 per cent YoY growth in gross advances with the deposit base growing 32 per cent YoY, but the CASA ratio was flat.

However, not all brokerages are positive on the stock as some of them see a downside risk in the counter, considering its expensive valuations.

The board of the bank had already approved his reappointment four years earlier, in January 2022.  The fresh development addresses a key discussion point for investors, and interest is now likely to shift back to the bank’s operating performance, said Kotak Institutional Equities while maintaining a 'Reduce' rating with an unchanged fair value of Rs 575.

"In the past, AU has consistently executed and delivered a performance that has been superior to its peers. However, we see valuations continuing to be a constraint," it added.

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