AU Small Finance Bank: Business growth to remain robust; diversity set to improve further

Initiating Coverage |

January 2018

Sector: Financials

AU Small Finance Bank

Pool for

Banks

Pool for

NBFC

First Among Equals

Research Analyst: Nitin Aggarwal

(Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540

| Anirvan Sarkar

(Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505

Alpesh Mehta

(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415

| Parth Gutka

(Parth.Gutka@motilaloswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

AU Small Finance Bank

Contents: AU Small Finance Bank – First among equals

Summary ............................................................................................................. 3

Investment thesis ................................................................................................. 5

What can investors look for as AUBANK gains scale!.............................................. 8

Strong presence across secured retail segments .................................................. 10

Transitioning to SFB will help expand product offerings ....................................... 13

AUBANK - key strengths and business strategy .................................................... 16

Housing finance business can scale up rapidly ..................................................... 18

Borrowing cost set to moderate… ....................................................................... 19

Off balance sheet mix likely to decline ................................................................ 21

Migration to 90dpd has impacted NPL ratios ....................................................... 22

Well capitalized to support business growth ....................................................... 24

Transition to SFB will cause transient earnings disruption.................................... 25

What differentiates AUBANK from other SFBs ..................................................... 26

A quick snapshot of SFBs .................................................................................... 28

SWOT analysis… ................................................................................................. 30

Bull & Bear case

................................................................................................. 31

Valuations full; remain convinced about long term story ..................................... 32

Annexure ........................................................................................................... 34

Financials and valuations .................................................................................... 36

8 January 2018

Initiating Coverage | Sector: Financials - Banks

AU Small Finance Bank

BSE Sensex

33,970

S&P CNX

10,505

CMP: INR697

TP: INR705 (+1%)

Neutral

First among equals

AU Small Finance Bank (AUBANK) has emerged from the transition of a leading retail-

focused NBFC (AU Finance) to a bank. It primarily serves low and middle-income

individuals/businesses, with distinct focus on three key lending products – Vehicle

finance, MSME finance, and SME finance. During FY13-17, AU delivered 36% loan book

CAGR and 46% earnings CAGR. With the grant of a Small Finance Bank (SFB) license

AUBANK plans to rapidly expand the scale of its operations and has shown strong

progress in building its deposit franchise in the early days of its SFB launch. The

migration to an SFB will weigh on return ratios in the near term; however, we believe

significant under-penetration in the states where AUBANK operates, strong credit

underwriting, and rapid scale-up of new product launches will enable it to emerge as a

leading SFB over the long term. We expect 42% earnings CAGR over FY18-20e, driving

FY20e RoA/RoE to 1.94%/20.1%. While we appreciate the long term opportunity that

AUBANK presents we believe that the stock is fairly valued at current valuations (~96%

gain over the IPO price). We thus initiate coverage with a Neutral rating and TP of

INR705 (5.9x Mar-20E BV, 32.1x FY20E EPS).

Stock info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

AUBANK IN

284.3

736 / 358

-2/86/-

198.1

3.1

1285

67.1

Financial snapshot (INRb)

Y/E MARCH

FY18E FY19E FY20E

NII

10.1 13.8 18.6

PPP

6.2

8.4 11.6

PAT

3.1

4.4

6.2

PAT Gr(%)

-9.5 42.4 41.0

EPS

10.8 15.4 21.7

BV/Share

81.0 96.8 118.9

P/E (x)

64.4 45.2 32.1

P/BV (x)

8.6

7.2

5.9

RoA (x)

1.8

1.9

ROE(X)

14.3 17.3 20.1

Shareholding pattern (%)

As On

Sep-17

Promoter

33.0

DII

6.3

FII

9.5

Others

51.2

FII Includes depository receipts

Business growth to remain robust; diversity set to improve further

As an asset-financing NBFC, AUBANK built a strong presence across three secured

lending segments – Vehicle loans, MSME loans, and SME loans. On transitioning to

an SFB, it has launched several new deposit and lending products and has also

expanded into newer geographies -



AUBANK had successfully launched and built a housing finance business over

FY11-16, which it later sold at ~5x P/B. AUBANK now plans to launch its home

loan product by 1QFY19e with focus on affordable housing segment. Given its

prior experience in housing finance and its strong presence in tier-II/III

centers, we believe AUBANK is well placed to rapidly scale up this business

post launch.



We expect AUBANK to deliver 42% loan CAGR over FY18-20e. The diversity in

loan mix and geographic regions will also add stability to the franchise.

AU Small Finance Bank

First among equals

Earnings growth to accelerate from FY19e; transition hiccups short-lived

While transitioning into an SFB will impact return ratios on (i) negative carry due

to CRR/SLR, resulting in margin compression, and (ii) higher operating expenses

due to investments in technology, branches, operating centers, employees, etc,

we expect return ratios to bounce back to healthy levels over FY19-20e. We

believe its diverse loan book, wide geographical presence and strong underwriting

skills across different lending segments will enable AUBANK to complete its SFB

transition expeditiously. We expect RoA/RoE to bottom out at 1.82%/14.3% in

FY18e and recover to 1.94%/20.1% by FY20e.

Nitin Aggarwal

91 22 3982 5540

nitin.aggarwal@motilaloswal.com

Please click here for Video Link

8 January 2018

Borrowing cost to moderate; Fee growth to remain strong

AUBANK is primarily funded via wholesale borrowings (NCDs, term loans, CP, etc),

resulting in higher borrowing cost. With healthy accretion in deposit base, we

expect funding cost to moderate to 7.0% by FY20E.

AU Small Finance Bank

This will enable AUBANK to launch several new competitive lending products,

boosting its business growth.



We nevertheless expect margins to moderate on (i) CRR/SLR requirement, and

(ii) change in asset mix, as AUBANK launches new products (working capital

loans, housing finance) etc.



Access to low-cost deposit funding will help AUBANK to strengthen its liability

franchise and enable it to retain higher share of assets on its books. Priority

sector loans (PSL) constitute a dominant share of AUBANK’s assets and enables

AUBANK to actively participate in the PSLC market and earn healthy fees.



Besides, launch of several new lending products and pick-up in cross-selling and

third-party distribution will further boost fee income

Migration to 90dpd has impacted NPL ratios; we expect asset quality to

improve

The secured nature of advances along with strong underwriting skills and processes

has enabled AUBANK to maintain strong control on NPL ratios. However, the

migration to 90dpd basis in 1QFY18, as AUBANK launched its SFB operations, has

resulted in an increase in GNPL ratio to ~3%. We view this deterioration as transient

and expect NPL ratios to improve gradually over FY18-20e. AUBANK continues to

follow a conservative provisioning policy – it makes 100% provisioning on any asset

that is delinquent for >730 days.

Valuations appear full; remain convinced about long term story

We expect AUBANK to deliver 42% earnings CAGR over FY18-20e, particularly as it

absorbs the costs related to SFB migration in FY18. After bottoming out at 14.3% in

FY18, RoE should gradually improve to 20.1% by FY20e. AUBANK has demonstrated

the capability to build a quality retail franchise, as evident in its performance across

all its lending segments. While we appreciate the long term opportunity that

AUBANK presents we believe that the stock is fairly valued at current valuations

96% higher than the issue price

)

. We thus initiate coverage with Neutral rating and

TP of INR705 (5.9x Mar-20E BV, 32.1x FY20E EPS). Risks – delay in scaling up SFB

operations and inability to ramp up liability franchise.

Exhibit 1:

Valuation comparison

Particulars

Loan Book

(INRb)

2Q18

Price

(INR)

MCap

(INRb)

PAT

PAT CAGR

(INRb)

(F17-F20E)

(FY18E)

ROA

(%)

ROE

(%)

FY19E

8.2

12.4

17.3

20.4

17.4

20.4

19.5

19.0

13.5

P/B

(x)

FY18E

2.3

2.8

8.6

6.4

2.6

4.9

3.0

4.4

4.3

FY19E

2.2

2.5

7.2

5.3

2.3

P/E

(x)

FY18E

90.8

64.4

39.6

18.4

FY19E

27.4

24.1

45.2

28.4

14.0

SFB’s

FY18E FY19E FY18E

Equitas

157

0.6

25%

0.6

1.6

2.6

Ujjivan

408

0.2

0.1

1.6

0.8

AU SFB

121

697

199

3.1

25%

1.8

1.9

14.3

NBFC’s

Bajaj Finance

721

1,811

1039

26.2

40%

3.5

3.6

20.2

Shriram Transport

855

1,485

337

18.0

32%

2.7

3.1

15.1

Banks

HDFC Bank

6,049

1,864 4,776

176.1

23%

1.9

18.8

Yes Bank

1,487

333

760

40.6

26%

1.7

1.8

17.3

IndusInd Bank

1,232

1,700 1.012

36.4

33%

1.8

1.9

16.9

Kotak Bank

1,526

1,003 1,840

61.0

26%

1.8

1.9

12.7

Note: For Equitas, Ujjivan, AU Bank, Bajaj Finance, Shriram Transport Loan book represents AUM

4.1

27.1

22.0

2.6

18.7

14.3

3.7

27.9

21.6

3.7

31.3

24.1

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Investment thesis

Geographical split of AUM

(FY17)

10%

11%

12%

13%

Rajasthan

Maharashtra

others

Gujarat

54%

Source: MOSL, Company

AU Small Finance Bank (AUBANK) has emerged from the transition of a leading

retail-focused NBFC (AU Finance). It primarily serves low and middle-income

individuals/businesses, with distinct focus on three key lending products – vehicle

finance, MSME finance, and SME finance. During FY13-17, it delivered 36% loan

book CAGR and 46% earnings CAGR. With the grant of a small finance bank (SFB)

license – it is the only asset-financing NBFC to have received one – AUBANK plans to

rapidly expand the scale of its operations. It has shown strong progress in building

its deposit franchise in the early days of its SFB operations. Its migration to an SFB

will weigh on return ratios in the near term; however, we believe significant under-

penetration in the states where AUBANK operates, its strong credit underwriting,

and rapid scale-up of new product launches make a strong investment case. We

expect 42% earnings CAGR over FY18-20e, driving FY20e RoA/RoE to 1.94%/20.1%.

Valuation

We expect AUBANK to deliver 42% earnings CAGR over FY18-20e, particularly as it

absorbs the costs related to SFB migration in FY18. After bottoming out at 14.3% in

FY18, RoE should gradually improve to 20.1% by FY20e. AUBANK has demonstrated

the capability to build a quality retail franchise, as evident in its performance across

all its lending segments. We believe that strong credit underwriting, wide

geographical presence, and presence across multiple lending segments will enable

AUBANK to undertake the SFB transition with limited earnings disruption. While

near-term returns could be limited on account of subdued earnings in FY18, we

believe AUBANK has the potential to emerge as a strong SFB over the long term.

While we appreciate the long term opportunity that AUBANK presents we believe

that the stock is fairly valued at current valuations. We thus initiate coverage with a

Neutral rating and TP of INR705 (5.9x Mar-20E BV, 32.1x FY20E EPS). We believe

that strong management track record, 42% projected earnings CAGR, and secured

retail portfolio will enable AUBANK to sustain its premium multiples.

Risks



Building and scaling up SFB operations need significant investments in

technology, infrastructure and employees. Also, there is need for compliance

with rigorous SFB guidelines.

Scaling up newly-launched asset products and building a strong liability

franchise will be key to growth and profitability. Any delays here will adversely

impact valuations.

Being a dominantly wholesale-funded entity, a rising interest rate environment

may adversely impact borrowing costs, and hence, profitability.

AUBANK has significant exposure to the top four states, which together account

for ~90% of its loan book.

8 January 2018

AU Small Finance Bank

AUM distribution as on

2QFY18

Wholesale

Assets, 15%

AU Small Finance Bank

AU Small Finance Bank (AUBANK) has emerged from the transition of a leading

retail-focused NBFC (AU Finance) into a bank. It primarily serves low and middle-

income individuals and businesses with limited or no access to formal banking and

finance channels. AU Finance commenced operations in 1996 in Jaipur, Rajasthan

and was registered as an NBFC with the RBI in 2000. In 2005, it became a

commercial associate of HDFC Bank for originating and servicing vehicle loans, which

fast-tracked its learning and implementation of various processes and systems. It

has since expanded the scale of its business, with a vision to cater to the unserved

and underserved customer segments. It expanded its product portfolio to include

MSME loans in 2007, housing finance in 2011 (sold in 2016), and SME loans in 2012.

The company was granted an SFB license by the RBI on December 20, 2016, and it

commenced SFB operations on April 19, 2017. It is the only NBFC categorized as an

asset-finance company to have received an SFB license. It aims to be a leading retail-

focused SFB that offers high quality service and customized solutions to its

customers. AUBANK currently operates out of 301 branches, has 9,974 employees,

and services 303,756 active loan accounts.

Retail Assets,

85%

Source: Company, MOSL

Exhibit 2:

AU Small Finance Bank - Key milestones

Particulars

1996

2002-03

2006-09

2010-11

Achievements



2012-13



2014-15



2016



2017



AU Finance was incorporated in the name of L.N. Finco Gems Pvt Ltd on 10th Jan, 1996. Launched vehicle finance bus.

Registers with RBI as a non-deposit taking NBFC. Ties up with HDFC Bank as a channel partner for CV business

Expanded its base to Maharashtra & Gujarat. Received PE investment of INR200m from Motilal Oswal

RBI registers the company as an Asset Financing Company and subsequently classifies it as NBFC-ND- AFC.

International Finance Corporation (IFC), IBE Fund and IBE Fund-I invested into the company. AU started offering housing

loans through whole-time subsidiary and further expanded its operations to Punjab, Madhya Pradesh and Goa.

Received investments worth INR1.5b and INR330.44m from Redwood Investment Ltd and IFC

Launched insurance broking services and expanded presence to Delhi, Himachal Pradesh and Haryana.

Credit rating upgraded two notches to CRISIL A / Stable for long-term credit facilities.

Credit rating upgraded to IND A+ / Stable for long-term credit facilities and IND A1+ for short-term credit facilities.

Received a credit rating of CARE A+ for long-term banking facilities by CARE ratings.

Became the only AFC to receive ‘in-principle’ approval from the RBI for establishing a Small Finance Bank

Received final approval from the RBI for transforming into SFB. Divested equity stake in Au Housing Finance Limited, Index

Money Limited and Au Insurance Broking Services Private Limited.

Assigned a credit rating of CRISIL A/ watch positive by CRISIL Ratings.

AU commences operations as Small Finance Bank.

AU SFB got listed on 10th July, 2017 via overwhelmingly successful IPO

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Experienced management team with a strong track record

AUBANK has an experienced management team led by

Mr Sanjay Agarwal

(Promoter, MD & CEO), a first generation entrepreneur. He is a chartered

accountant with over 21 years of experience in finance, accounting, strategic

planning and credit risk management. Over the last 20 years, he has helped

transform the small NBFC start-up into a small finance bank with a loan book of

>INR100b. AUBANK has an experienced senior management team, with average

experience of >15 years in a wide range of financial products and services.

Mr Sanjay Agarwal:

He is the Promoter, Managing Director and CEO. A

qualified Chartered Accountant, he has over 21 years of experience in

finance, accounting, strategic planning and credit risk management. He has

played an instrumental role in building AU right from its start in 1996.

Mr Uttam Tibrewal:

He is the Executive Director. He has been associated

with AU since 2003. He holds a BCom from the University of Delhi.

Exhibit 3:

Experienced management team

Name

Mr Aalekh

Vijayvargia

Mr Bhaskar Vittal

Karkera

Mr Naveen

Vashisht

Mr Pankaj Sharma

Mr Priyam Alok

Mr Sanjay Singh

Rajawat

Designation

National Credit

Manager Secured

Business Loan-

MSME

Chief of Wheels

National Business

Manager – Wheels

(Used)

National Business

Manager – MSME

Chief of Business

Banking

Group Head –

Liabilities

Chief of Wholesale

Banking

Chief of Credit and

Collection – Retail

Bank

Senior Vice

President - Investor

Relations

Age

(Yrs)

Highest Qualification

Work Ex

(Yrs)

Relevant Experience

BE (Automobile

Engineering) from

University of Bombay

Senior Management

Program (IIM, Kolkata)

MBA from Mohanlal

Sukhadia University,

Jaipur

MBA from Bharathidasan

University

CA and Master of

Philosophy from

Rajasthan University

PG Diploma, University

of Mumbai,

Management for

Executives from IIM

Society, Lucknow,

PG Program in Mgmt for

Executives from IIM,

Ahmedabad

MBA from Bharathidasan

University and CA

India Infoline Housing Limited and ICICI Bank

Mahindra Financial Services, HMP Engineers,

Mahindra & Mahindra, and HDFC Bank

Equitas Micro Finance, Development Credit Bank,

Cholamandalam Investment and Finance Company,

and Indiabulls Infrastructure Credit

DSP Merrill Lynch Capital, Indiabulls Housing

Finance, ICICI Bank, and BOB Housing Finance

Kotak Mahindra Primus, Citibank India NA, ING

Vysya Bank, and Reliance Broadcast Network

Deutsche bank, ICICI bank & IDBI bank

Mr Vivek Tripathi

ICICI Bank, Reliance Capital, Grasim Industries, and

Sintex Industries Limited

Mr Rishi Dhariwal

Mr Hemant Sethia

Citicorp Finance (India) and Ashok Leyland

Credit Analysis and Research, and HDFC Bank

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

What can investors look for as AUBANK gains scale!

We analyze AUBANK return potential over the long term as shaping and building up

the franchise will take time while track record of the management across product

lines gives us confidence about their execution skills. We have thus

compared

AUBANK to several other leading private banks that have gone to build a

formidable franchise and alongside delivered excellent returns to shareholders.

Going back in history, we have thus compared AU’s current loan book size to other

leading banks and note that

from the starting reference point these banks have

delivered 27-42% CAGR returns over the next ten years while their loan book has

compounded between 22%-40% over the similar period.

We further note that the

trading multiples for most of these banks has either been stable or have reported

some expansion (highest

multiple expansion being for KMB and IIB)

which resulted

in them delivering higher CAGR returns vs their balance sheet / earnings growth.

Exhibit 4:

Key metrics of leading banks at the time they were of the size of AUBANK

(INRb)

AU SFB

HDFC Bank

Yes Bank

IndusInd Bank

Axis Bank

Kotak Bank

Year of

Loan book

comparison (INRb)

FY17

FY02

FY07

FY04

FY03

FY05

PAT

(INR b)

3.1

3.0

0.9

2.6

1.9

1.7

Mkt Cap

(INRb)

199

P/B

(x)

10.0

3.0

5.0

1.2

1.0

1.4

P/E

(x)

37.7

21.4

20.7

3.6

4.4

Mkt Cap /

Loans

3.1

1.0

0.1

0.2

0.1

RoA

(%)

2.6

1.5

1.2

2.1

1.1

1.3

RoE

(%)

20.4

20.8

13.9

37.4

25.3

9.7

Source: Company, MOSL

Note: Here we have taken loan book as the measure of comparison to ascertain the starting point

Exhibit 5:

Key metrics - 3 years hence

Particulars

(Rs Mn)

AU SFB

HDFC Bank

Yes Bank

IndusInd Bank

Axis Bank

Kotak Bank

3 Year

Hence

FY20

FY05

FY10

FY07

FY06

FY08

Loan

book

(bn)

184

256

222

111

223

220

Loan Book

(3 Yr

CAGR)

42%

55%

52%

15%

46%

45%

PAT

(b)

5.7

6.7

4.8

0.7

4.9

9.9

PAT

(3 Yr

CAGR)

23%

31%

72%

-36%

36%

80%

Mkt Cap

(b)

169

216

Mkt Cap

Stock Price

(3 Yr

(3 Yr CAGR)

CAGR)

37%

30%

121%

195%

32%

22%

107%

66%

P/B

(x)

3.7

2.8

1.3

3.5

6.7

P/E

(x)

23.8

12.2

20.7

20.3

5.0

Mkt Cap

RoA

/ Loans

(%)

RoE

(%)

0.7

1.4

18.5

0.1

1.6

20.3

0.1

0.4

7.1

0.4

1.1

18.4

1.0

8.3

Source: Company, MOSL

Exhibit 6:

Key metrics - 10 years hence

(INRb)

AU SFB's

HDFC Bank

Yes Bank

IndusInd Bank

Axis Bank

Kotak Bank

10 Year

Hence

FY27

FY12

FY17

FY14

FY13

FY15

Loan Loan book

PAT

(10 Yr

book

(INRb)

CAGR)

(INRb)

1,285

1,954

1,323

551

1,970

886

35%

40%

36%

22%

39%

29%

52.8

51.7

33.3

14.1

51.8

30.5

PAT

(10 Yr

CAGR)

33%

43%

18%

39%

33%

Stock

Mkt Mkt Cap

(10 Yr

price

cap

(INRb) CAGR) (10 Yr CAGR)

1,220

141

264

609

1,014

34%

37%

52%

62%

27%

29%

42%

34%

P/B

(x)

P/E

(x)

Mkt Cap

RoA

/ Loans

(%)

RoE

(%)

4.1

3.3

3.1

1.8

7.5

23.5

16.8

18.7

11.1

35.8

0.6

1.7

18.7

0.1

1.8

18.9

0.5

1.8

17.5

0.3

1.7

18.5

1.1

1.8

13.2

Source: Company, MOSL

While we concede that AUBANK is already trading at expensive valuations of 5.9x

March20E BV, we believe that strong earnings/balance sheet growth rate will

nevertheless take it to similar levels of profitability and loan book size as other top

retail banks today.

8 January 2018

AU Small Finance Bank

Exhibit 7:

Performance of leading banks over last three years

Particulars (Rs Mn)

HDFC Bank

Yes Bank

IndusInd Bank

Axis Bank

Kotak Bank

Loan Book

(FY14-FY17)

22%

33%

27%

17%

33%

PAT

(FY14-FY17)

20%

27%

-16%

26%

Mkt Cap

(FY14-FY17)

27%

68%

48%

20%

39%

Stock Price

(FY14-FY17)

24%

55%

42%

19%

31%

Source: Company, MOSL

Exhibit 8:

Performance of leading banks over last ten years

Particulars

HDFC Bank

Yes Bank

IndusInd Bank

Axis Bank

Kotak Bank

Loan book

(FY07-FY17)

28%

36%

26%

27%

PAT

(FY07-FY17)

29%

43%

45%

19%

25%

Market cap

(FY07-FY17)

28%

34%

51%

24%

26%

Stock price

(FY07-FY17)

22%

27%

42%

17%

22%

Source: Company, MOSL

Exhibit 9:

Stock price CAGR (Dec 07 – Dec 17)

13%

Axis Bk

16%

kotak Bk

20%

HDFC Bk

24%

Yes Bk

37%

IIB

Source: Company, MOSL

We note that assigning a multiple of 20-25x earnings vs ~32.1x Mar-20e EPS that it

trades today (this corresponds to 3.5x to 4.5x P/BV range and implies ~30%

multiple de-rating from current levels) the bank can be valued in between INR1t to

INR1.3t, over next ten years. However over a more medium term three year

scenario we value AUBANK at INR950 per share (27x earnings) which implies an

upside of ~36% over current levels.

Alternately, we also assess AUBANK’s valuation ten years down the line by

comparing it on loan to market cap for major banks, after building in 35% CAGR in

loans (HDFCB, AXSB & YES have delivered 40%/39%/36% loan CAGR during the same

phase). We believe that valuation on market cap to loans can be used as a

comparative valuation assessment tool as we otherwise project AUBANK’s RoA to

stabilize at ~2% mark, which stands close to the other top performing private banks.

We thus value AUBANK at 0.7x loans (HDFCB/IIB/KMB trades at 0.65x/0.55x/0.7x

adjusted) which corresponds to Rs0.96t.

Our valuation assessment between the two above methodologies thus implies a

CAGR return of 17% to 21% over the ten year period.

The above return potential

though stands lower than the range of 27%-42% returns that other leading private

banks have reported (mainly due to premium valuations today) but still significant

enough for long term investors. Moreover the above return also factors in much

more reasonable multiple for AUBANK than what it is trading at today.

8 January 2018

AU Small Finance Bank

Strong presence across secured retail segments

AUBANK has built a strong presence across three lending segments – vehicle loans,

MSME loans and SME loans. It has always focused on secured lending, which has

enabled it to maintain strong control on asset quality across economic cycles. Unlike

most other NBFCs that have received the SFB license, AUBANK does not have any

exposure to the micro-finance segment or to unsecured personal loans. Given the

collateralized nature of lending (~99% of loans are secured) AUBANK is able to

maintain a strong control on its loss ratios in the event of a default.

Exhibit 10:

Characteristics of key product lines

Particulars

SME loans

1) Manufacturing, trading and service units

1) First time users/ buyers

1) Micro, small manufacturing

2) Medium sized NBFC / HFC /MFI

Clientele

2) Small Road Transport operators

and service enterprises

3) Small builders for development of

3) Self Employed individuals

2) Agriculture based units

affordable units

Rural, semi-urban & low

Target Segment

Turnover > INR1m & < INR10m Turnover > INR10m

income urban masses

Up to INR2.5m

Up to INR5m

INR5m– INR200m

Ticket size

(average INR0.3-0.4m)

(average INR0.9-1m)

(average INR20m - 25m)

Tenure

36 – 60 months

60–120 months

36–84 months

Security

Vehicle

Property

Property/ Receivables

Business Expansion

Business expansion

Purpose

Income / Revenue Generation

Working capital requirement

Working Capital

Equipment purchase

AUM as on Sept 17

INR57.9b

INR36.4b

INR27b

AUM Mix as of Sept 17 47.7%

30%

22.3%

Source: Company, MOSL

Vehicle loans

MSME loans

Exhibit 11:

AUBANK’s loan mix as of 2QFY18 (INRb)

10.21

9.29

7.02

0.57

57.86

48%

36.38

30%

Wheels

Secured MSME

Secured SME

NBFC

RE Group

others

Source: Company, MOSL

Exhibit 12:

AUBANK’s AUM composition – FY13

MSME

15%

SME

Exhibit 13:

AUBANK’s AUM composition – FY19e

MSME

29%

Vehicle

44%

SME

16%

Others

11%

Vehicle

79%

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Vehicle finance business

AUBANK commenced operations as a vehicle financier in 1996. It extends loans for

the purchase of new/used vehicles (and for refinancing of vehicles) that are

primarily used for revenue generating activities. It extends vehicle loans across

several categories: (i) multi-utility vehicles, (ii) cars, (iii) small commercial vehicles,

(iv) light commercial vehicles, (v) medium and heavy commercial vehicles, (vi)

tractors, (vii) three-wheelers, (viii) two-wheelers, and (ix) construction equipment.

Over the years, AUBANK has built a deep understanding of the cost of ownership

and resale potential for various vehicle types in different regions, and this has

helped it in framing customized credit policies. Gross AUM in the vehicle finance

business has grown at a CAGR of 16.5% over the last four years to INR58b (as of

2QFY18), while the share of this business in total AUM is 48%. The average ticket

size in this business is INR0.34m while the typical loan tenure is 3-5 years.

Exhibit 14:

Vehicle Finance – trend in AUM composition

MUVs

LCV

3 Wheelers

100

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

22.3

15.9

15.6

28.2

14.7

18.4

18.2

30.7

8.6

22.0

19.3

32.4

4.9

24.2

20.2

34.0

3.0

23.2

23.9

33.9

Cars

MHCV

2 Wheelers

SCV

Tractors

2.6

21.8

28.3

33.0

FY13

6.3

1.0

FY15

FY16

FY17

109

Exhibit 15:

Vehicle Finance – trend in AUM growth

Vehicle AUM (Bn)

42.2

32.7

29.3

26.5

26.7

26.4

AUM Growth (YoY )

FY14

FY18E FY19E FY20E

Source: Company, MOSL

MSME finance business

AUBANK launched its MSME (Micro, Small and Medium Enterprises) business in

2007 to cater to the credit needs of the large section of the economy, which was

largely unbanked / under-served by formal financial institutions. The MSME

segment accounts for an estimated ~45% of India’s manufacturing output and ~40%

of total exports. According to CRISIL, only a quarter of the total lending to MSMEs is

through formal channels, which signifies the potential lending opportunity that this

segment presents.

Here, AUBANK targets customers with a turnover of over INR1m and loan customers

typically include provision stores, dairy businesses, hotels and restaurants. AUBANK

extends MSME loans for business expansion, working capital and purchase of

equipment, and nearly all of these loans are secured by immovable property. In

FY17, the average ticket size in this business was INR1.08m while the loan tenure

extends up to 12 years.

8 January 2018

AU Small Finance Bank

Exhibit 16:

MSME finance – trend in AUM growth

111.9

MSME AUM (Bn)

AUM Growth (YoY )

62.2

51.1

61.2

45.0

33.7

FY18E

29.4

FY19E

29.8

FY20E

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

SME finance business

AUBANK commenced the SME loan business in 2012. Under this segment, it extends

loans to varied small and medium businesses including HFCs and MFIs. It classifies

the SME loans into three broad categories: (i) SME business loans, (ii) Construction

finance loans, and (iii) NBFC finance loans. It extends SME loans for purposes such as

business expansion, working capital, and equipment purchase. The target segment

comprises customers with a turnover of >INR10m and typically includes small and

medium sized enterprises, traders, wholesalers, distributors, retailers, self-

employed professionals, and small construction companies. The loans are secured

by immoveable property or receivables of the borrowers. AUBANK originates the

SME loan business through its centralized team in Jaipur, referrals by existing

customers/employees, cross-selling products to existing vehicle finance and MSME

customers, and through advertisements.

The gross AUM in this segment has grown at a CAGR of 78% over the last four years

to INR27b (as of 2QFY18) and the segment constitutes 22% of AUBANK’s total gross

AUM as at 2QFY18. The average ticket size in this business stands at INR21.9m

while loan tenure typically ranges up to 15 years.

Exhibit 17:

SME financing – trend in AUM composition

Business loans

4.3

Const. Finance

7.4

35.3

92.6

42.3

14.9

FY14

31.1

FY15

39.9

FY16

44.6

47.0

36.1

29.2

-7.4

FY17

FY13

FY14

FY15

FY16

16.0

19.1

22.3

25.1

0.8

21.0

NBFC

Unsecured ST loan

0.6

23.3

0.1

26.0

99.4

74.9

Exhibit 18:

SME financing – trend in AUM growth

SME AUM (Bn)

147.0

AUM Growth (YoY )

3.0

FY13

FY17

FY18E FY19E FY20E

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Transitioning to SFB will help expand product offerings

AUBANK has launched a wide

variety of CASA accounts to

attract new customers

Savings account Current account

Samarth

Mangalam

Bachpan

Shubh Labh

Vidyaarthi

Shubh Shuruaat

Samarth Pravasi

Parivahan

Tejaswini

Paryatan

Varishtha

Vikray

Aarambh

AU Samriddhi

Pragati

Sahyog

Source: Company, MOSL

AUBANK’s experience in multiple consumer lending segments and wide customer

base has enabled it to quickly launch its SFB operations. Its technology-driven hub-

and-spoke branch model and strong customer focus has enabled it to convert most

of its erstwhile branches into bank branches/asset centers.

In the

retail segment,

AUBANK has launched working capital loans, gold loans,

agriculture loans and loans against securities. This supplements its primary product

lines of vehicle, SME and MSME loans. Further, AUBANK plans to launch its housing

finance business latest by 1QFY19e.

In the

wholesale segment,

the bank has launched business banking loans with the

facility of cash credit/overdraft. It plans to continue with selective focus on its

lending towards NBFCs, MFIs and real estate developers. Gradually, AUBANK also

plans to offer transaction banking services for MSME and SME customers to help

them better manage their liquidity and cash flow operations.

On the

liability side,

AUBANK has launched a complete bouquet of products

comprising of current accounts, savings accounts, term deposits, recurring deposits,

and transaction banking services. In addition, it also offers locker services at its

branches. To better differentiate its liability products, AUBANK (i) has launched a

wide variety of current and savings accounts, (ii) offers higher interest rates, and (iii)

makes monthly interest payouts. This has helped it to improve its product

proposition and also address the specific needs of its customers.

Exhibit 19:

AUBANK - Product portfolio

Asset products

Retail assets:

1) Vehicle finance loans

2) Secured business loans to SME & MSMEs

3) Housing finance loans (to be launched)

4) Gold loans

5) Loan against securities

6) Agriculture term loans

Wholesale assets:

1) Business Banking - Working capital

facilities such as OD & cash credit

2) Unsecured loans for MSME and SME

3) NBFC loans

4) Construction finance loans

5) Non-fund based products

Source: Company, MOSL

Liability products

Other products and services

Current accounts

Savings accounts

1) Sale of third party investment products

Term deposits and recurring deposits

such as mutual funds, insurance and risk

Payment wallets and customized prepaid

management products

instruments

2) Financial advisory and education programs

5) Collections and payments solutions for

for individuals and new entrepreneurs

MSME and SME customers

Besides asset and liability products, AUBANK also plans to cross-sell a range of third-

party investment products such as mutual funds and insurance, and provide

financial advisory services to its existing and potential customer base.

AUBANK has also started offering online banking with NEFT fund transfer facility and

is investing in building digital payment solutions such as internet banking, bill

payment system, cash management services, wallet services, IMPS, etc. It aims to

operationalize these services by the end of FY18, which will help it bridge the

product gap with the larger banks and compete effectively.

8 January 2018

AU Small Finance Bank

Scale up of new products will add to diversification

Having started off as a pure play vehicle financier, AUBANK now has a diversified

business mix. The share of vehicle loans in its AUM has declined from ~80% in FY12

to ~50% in FY17. AUBANK has adopted a prudent approach to grow its business and

has put credit quality as a top priority. Despite it being a pure vehicle financier, it

adopted a cautious stance on incremental disbursements in the MHCV space in April

2013, as it sensed impending stress in this segment. The share of this segment in its

total vehicle AUM was 3% in Mar17 against 23% in March 2012. Its overall vehicle

AUM remained static for nearly three years (FY12-15), and this was the time

AUBANK focused on building SME and MSME financing.

Currently, the vehicle finance, MSME finance, and SME finance segments comprise

48%, 30%, 22%, respectively of AUBANK’s total AUM. We expect the AUM mix to

diversify further, as AUBANK scales up its newly launched products and introduces

other lending products like housing loans. Besides product diversification, we

believe AUBANK’s geographical diversification will also improve gradually as

currently top four states account for ~90% of total loans.

Exhibit 20:

AUBANK’s loan mix as of 2QFY18

10.21

9.29

7.02

0.57

57.86

48%

36.38

30%

Exhibit 21:

AUBANK’s state wise customer mix

Wheels

Secured MSME

Secured SME

NBFC

RE Group

others

Delhi

Others

Madhya

Pradesh

12%

Gujarat

14%

Rajasthan

47%

Maharashtra

15%

Source: Company, MOSL

Exhibit 22:

AUBANK’s geographical AUM split-FY17

Rajasthan

Gujarat

Maharashtra

12%

13%

54%

Madhya Pradesh

Delhi

others

Source: Company, MOSL

Exhibit 23:

Sales and collection together form 75% of the

employee base

1,288

15%

771

855

10%

1,155

14%

Sales

Collections

4,466

52%

Credit

Operations

Others

11%

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Rapid branch expansion will improve brand visibility and aid business growth

We believe AUBANK has significant opportunity to grow its business. It has

converted 121 of its NBFC branches into asset centers, where it only offers lending

products. It intends to continue expanding its branch network and add 162 branches

in FY18 to reach 431 branches and 121 asset centers by the end of FY18. The 431

branches will comprise of 164 branches in tier-1 centers and 267 branches in tier-2

to tier-6 centers, of which 113 branches are expected to be located in unbanked

rural centers. This will also enable AUBANK to comply with the requirement of

having at least 25% branches in rural/unbanked centers by March 2018. The RBI has

allowed banks to (i) classify a business correspondent center as a branch, (ii)

exempted asset centers from being counted as branches for three years, and (iii)

count asset and liability centers together as one branch. This would significantly

ease the pressure on SFBs to meet the stringent guidelines on branch distribution.

Exhibit 24:

AUBANK’s geographic presence as at FY17 end

Exhibit 25:

AUBANK’s proposed branch network

Proposed branch network (as submitted to RBI)

12%

13%

Rajasthan

Gujarat

Madhya Pradesh

Maharashtra

Punjab*

46%

Haryana

Others

Source: Company, MOSL

Source: Company, MOSL.

Note: Other states include Chattisgarh, Delhi, Himachal Pradesh, UP, Goa, TN, Telangana, Uttarakhand, WB, AP, Kerala, Karnataka and Odisha

To gain customer mindshare, AUBANK has imparted a unique look to its branches in

keeping with the local image. Besides, it uses visual language at its branches to

better guide rural customers. This along with rapid increase in branch network will

enable it to strengthen its brand and gain strong mindshare amongst customers.

Exhibit 26:

AUBABNK makes use of respective city images in

its branches to form strong connect with its customers

Exhibit 27:

AUBANK makes use of visual language to assist its

rural/suburban clientele

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

AUBANK - key strengths and business strategy



Leverage existing capabilities and customer base

AUBANK is the only NBFC categorized as an asset finance company to have

received an SFB license from the RBI. Its operational experience as an asset

finance NBFC, with presence across several secured lending segments, strong

customer base and wide branch presence has enabled it to smoothly launch its

SFB operations. The company has strong local understanding of the

geographical regions in which it operates, which enables it to address specific

needs of its customers and win repeat business. It intends to continue with its

go-to-market approach to increase its customer base, implement customer

reach programs and expand its footprint / product suite to drive customer

acquisition in target markets.

Customer centricity remains a high focus area

AUBANK places high emphasis on customer delight and strives to offer quality

service to its customers. It has created customized products and services to

cater to the evolving needs of its customers. It has put in place customer-

friendly processes, which make it easier to serve the unbanked and under-

banked population. It is employing digital channels for paperless on-boarding of

new customers through e-KYC and following it up with a variety of paperless

transactions at branches. Backed by robust technology architecture, the bank is

able to offer the same service levels to its customers at all its branches and not

just the home branch. AUBANK ensures that the customer interactions are

primarily undertaken by its own employees. To provide quality service to its

customers, AUBANK focuses on the following:







Hire local talent:

AUBANK recruits locally, which enables better

understanding of customers in the region and their requirements. This also

helps build closeness with its customers in rural and semi-urban markets,

win repeat business, and maintain high collection efficiency.

Develop healthy relationships with vehicle manufacturers and dealers:

AUBANK has developed healthy relationships with vehicle manufacturers

and dealers, and enters into preferred financing arrangements with them

from time to time. This enables it to source new business and control asset

quality.

Dedicated call centers:

The bank has set up a separate team of tele-callers

to source new business for each of its business segments. Its call centers

operate in English/select regional languages. This enables AUBANK to

maintain close connect with its customers and helps ensure timely

collections.

Referral and other programs:

AUBANK has introduced referral programs

like “Dost Banaye Dost” for its customers; this helps source new business

and maintain a check on asset quality. It has also launched employee

referral programs that offer incentives to employees who refer their family

and friends to AUBANK for business.

8 January 2018

AU Small Finance Bank



Multiple distribution channels to enable faster growth

AUBANK plans to employ multiple channels to offer its products to customers.

This will enable it to improve penetration in rural and suburban geographies,

and equip it to compete with other private banks in urban and metropolitan

regions. It intends to offer its retail asset and liability products through both

online and branch banking channels. It is already on-boarding customers

digitally through a tab-based application, which employs e-KYC verification and

enables paperless account opening.

Diverse product offering to help attract new customers

AUBANK has launched banking operations with a diverse product offering,

which helps attract new customers. Besides asset and liability products, it also

plans to cross-sell third-party products such as mutual funds and insurance, and

provide financial advisory services. It also plans to offer transaction banking

services for MSME and SME customers to help them better manage their

liquidity and cash flow operations. A wider product portfolio will enable

AUBANK to speed up customer acquisition and improve customer experience.

Right technology use will enable sustainable growth and aid productivity

AUBANK has carefully chosen its technology architecture after evaluating the

platforms being used by other leading private sector banks. It aims to leverage

technology to grow its business and offer diverse products to its customers in a

convenient and cost-effective manner. It has implemented several key

applications including Oracle’s Core Banking & Accounting Platform (Flexcube),

Newgen’s Loan Origination Platform and CRM Next’s Customer Relationship

Management (CRM tool). The bank has already provided tablets integrated with

biometric devices and bluetooth printers to its employees to enable faster

customer verification, account opening and activation. It has also commenced

using interactive voice response systems (IVR) in English and select regional

languages to cater to its existing customer base.



8 January 2018

AU Small Finance Bank

Housing finance business can scale up rapidly

AUBANK had earlier launched and built the housing finance business in 2011 via its

wholly-owned subsidiary, Aavas Financiers Limited (formerly known as AU Housing

Finance). Over 2012-2016, it was able to grow its housing loan book to INR16.8b,

before it divested 90.1% stake in the subsidiary in June 2016. Strong return ratios

and pristine asset quality enabled AUBANK to sell its stake to Kedaara Capital and

Partners group at INR8.28b (~5x P/B). It now plans to launch the home loan product

(by 1QFY19e) as a part of its SFB operations and will focus on the affordable housing

segment. Given its prior experience in building housing finance operations and its

growing presence in tier-II/III centers, we believe AUBANK is well placed to rapidly

scale up this business post its launch.

Exhibit 28:

AU rapidly scaled up the housing operations over five years - AUM INRb

16.8

8.42

4.06

0.01

FY12

1.78

FY13

FY14

FY15

FY16

Source: Company, MOSL

Exhibit 29:

AU housing finance reported robust traction in earnings over FY12-16

PAT (INRm)

320

190

FY13

FY14

FY15

FY16

Source: Company, MOSL

Exhibit 30:

AU housing finance reported RoA/RoE of 2.5%/22.1% in FY16

ROA

ROE

21.9%

2.1%

6.7%

2.5%

3.1%

2.5%

28.4%

22.1%

FY13

FY14

FY15

FY16

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Borrowing cost set to moderate…

As an NBFC, AUBANK funded its loan book primarily by way of NCDs, term loans,

commercial paper, and subordinated debt. This resulted in high borrowing cost.

However, with the launch of SFB operations, AUBANK is able to access low cost

CASA deposits, term deposits, and recurring deposits. These will supplement its

existing sources of liquidity and strengthen its funding franchise. In the initial few

months of its banking operations, AUBANK has already opened ~1, 56,091 CASA

accounts and has mobilized INR19.8b of deposits, of which CASA deposits constitute

33%. This has helped lower its average incremental funding cost to 6.7% in 1HFY18

(post conversion to a bank) from 8.15% - before it converted into a bank. We expect

AUBANK’s average funding cost to decline to 7.0% by FY20e, as the composition of

deposits improves further, while existing high cost NCD borrowings mature.

Exhibit 31:

Sources of funding

NCDs

Term Loans

Working Cap

FY15

Sub Debts

Exhibit 32:

Steady improvement in credit rating has helped

AUBANK in reducing its borrowing cost

Rating

agency

CRISIL

Ratings

Term

Credit rating

as of FY13

CRISIL A / Stable

CRISIL A1

[ICRA]A (Stable)

CARE A

CARE A1

Current credit

rating

CRISIL A+ / Stable

ICRA A+ (Stable)

ICRA A1+

IND A+ (Positive)

IND A1+

CARE A+ (stable)

BWR AA / Stable

FY13

FY14

FY16

FY17

Long Term

Short Term

Long Term

ICRA

Short Term

Long Term

India

Ratings

Short Term

Long Term

CARE

Ratings

Short Term

Brickwork Long Term

Ratings

Short Term

Source: Company, MOSL

Exhibit 33:

Incremental cost of funds has declined sharply

after AUBANK launched its SFB operations

Particulars

Cost of funds before conversion into a bank

Post bank conversion – incremental cost

Average cost of funds

Cost of funds (%)

8.15

6.70

7.40

Source: Company, MOSL

Exhibit 34:

Borrowing as % of total funds will likely decline

to ~36% by FY20E

Borrowing as % of Total Funding

9.9%

100%

8.1%

100%

66%

46%

FY16

FY17

FY18E

FY19E

36%

FY20E

Borrowing Cost

7.8%

7.7%

7.6%

Source: Company, MOSL

Besides, AUBANK will also be able to raise funds from (a) the RBI’s liquidity

adjustment facility and market stabilization fund, (b) capital market borrowings such

as infrastructure bonds, tier-II bonds, and perpetual bonds. AUBANK has also

received the Scheduled Commercial Bank status from the RBI and is thus eligible to

raise resources through money market borrowings, interbank borrowings and

issuance of certificates of deposit.

8 January 2018

AU Small Finance Bank

…but NIM to decline on SFB migration and change in asset mix

We expect the yield on interest-earning assets to moderate by 172bp over FY17-20e

led by (i) lower yield on investments, as AUBANK complies with CRR/SLR regulations,

(ii) change in asset mix, particularly as AUBANK launches and scales up its housing

finance operations, and (iii) benign external rate environment. We thus estimate

margins (including securitization) to moderate by 76bp over FY17-20e.

Exhibit 35:

We expect spreads to moderate to 7% by FY20e

Yield on average loans

22.8

22.1

12.5

9.6

21.4

11.3

10.1

20.5

10.3

10.2

cost of funds

20.3

11.9

8.4

19.8

12.1

19.3

12.1

7.2

Spread

18.6

11.6

12.3

10.5

7.6

7.0

Source: Company, MOSL

Exhibit 36:

While expect margins to moderate to 7.4% by FY20e

NIM (Incl Securitization)

8.2

6.0

6.1

8.7

8.2

7.9

7.7

7.4

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Off balance sheet mix likely to decline

PSL certificates to help boost fee income

AUBANK has been an active participant in loan assignment and securitization

activities, which have helped it optimize its funding and liquidity requirements and

boost return ratios. We believe access to low-cost deposits will help it to strengthen

its liability franchise and enable it to retain higher share of assets on its books. We

expect AUBANK’s off balance sheet mix to decline to 31% by FY20e.

Exhibit 37:

We expect AUBANK’s off balance sheet mix to decline to 31% by FY20e

On Bal.sheet (% of Total)

Off Bal.sheet (% of Total)

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

We note that the priority sector accounts for ~80% of AUBANK’s assets; this is

higher than the 75% of prior year ANBC it is required to maintain as an SFB. Hence,

AUBANK can actively participate in the priority sector lending certificates (PSLC)

market, where it will be able to trade its right of claim on priority sector loans for a

fee. It generated fee income of INR450m from the PSLCs it sold in 1HFY18. Pick-up in

cross-selling and third-party distribution income, and increase in transaction

banking/processing charges will further boost AUBANK’s overall fee income growth.

We expect AUBANK to report strong fee growth over next few years.

Exhibit 38:

Trend in other income as percentage of total assets

Other income as a % of total assets

1.8%

2.0%

1.6%

2.0%

1.8%

1.7%

1.6%

FY15

FY16

FY17

FY18E

FY19E

FY20E

FY21E

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Migration to 90dpd has impacted NPL ratios

We expect it to improve steadily

AUBANK has historically maintained strong asset quality, with GNPL ratio varying

between 0.38% and 1.68% over the last six years. The secured nature of its lending

business along with strong underwriting skills and processes has helped AUBANK in

reporting healthy NPL ratios. However, migration to 90dpd NPL recognition norm in

1QFY18 (as AUBANK launched its SFB operations) has resulted in an increase in

GNPL ratio to 3%. In 1QFY18, its GNPLs were also adversely affected by the impact

of GST implementation on its SME/MSME borrowers. Given the collateralized nature

of its lending portfolio and lower loss given default, we expect AUBANK’s NPL ratios

to improve gradually over FY18-20e.

We note that AUBANK has been following a conservative provisioning policies right

from the time of its NBFC operations. The following exhibit highlights that AUBANK

has been more aggressive in NPL provisioning than the regulatory requirement.

Exhibit 39:

AUBANK follows an aggressive provisioning policy v/s the regulatory requirements

Overdue period

(in Months)

Up to 6 months

4 to 5 months

5 to 6 months

6 to 12 months

12 months & above

Provision % for erstwhile AU Finance

2017

2016

2015

2014

2013

10%

40%

10%

40%

50%

RBI provisioning policy

Up to 1 Yr (secured)

Up to 1 Yr (Unsecured)

1-3 Yr

< Than 3 Yr

15%

25%

40%

100%

AUBANK provisioning policy

90 days - 180 days

181 days - 364 days

365 days-730 days

More than 730 days

15%

30%

60%

100%

Write - off @ 100%

Source: Company, MOSL

Exhibit 40:

We expect asset quality to improve gradually

from FY19e onwards

GNPA (%)

NNPA (%)

1.68

1.27

0.38

0.19

0.54

0.64

0.96

2.03

0.66

1.09

1.82

1.51

3.30

3.25

Exhibit 41:

Provisioning coverage to improve to 48% by

FY20e; we build in FY18-19e average credit cost of 1.22%

PCR

2.91

0.46 0.39

0.27

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Company, MOSL



FY12

FY13

FY14

FY15

FY16

FY17 FY18E FY19E FY20E

Source: Company, MOSL

Strong credit underwriting and risk management framework

AUBANK has a strong and comprehensive credit and risk management

framework to identify, monitor and manage risks. Credit risk management is all

the more crucial, as a significant number of AUBANK’s customers are primarily

first-time users of financial products, and therefore, do not have any credit

history. AUBANK has put in place separate credit teams for each of its business

lines driven by in-house field investigation officers. The credit team evaluates

business needs, identifies expansion plans, and analyzes the borrower’s ability

to repay the loan.

8 January 2018

AU Small Finance Bank

AUBANK follows a three-layered assessment process, which includes visits by

credit officers, relationship officers and business officers to analyze the business

and collateral quality.



Strong emphasis on loan collection and monitoring

AUBANK has set up a robust collection management system, which includes a

collection control room that centrally manages allocations among collection

executives and uses analytics for the optimum allocation of cases to the

collection team. The collection team comprises 1,155 employees (14% of total

employees) and 139 external collection agents as of FY17. Collections are

organized by geography, and are further divided based on delinquency,

products and customer repayment history. Effective credit risk management has

enabled AUBANK to maintain healthy asset quality across business and

economic cycles.

Exhibit 42:

Sales, collections and credit together account for ~75% of AUBANK’s employee

base

1,288

15%

771

855

10%

1,155

14%

4,466

52%

Sales

Collections

Credit

Operations

Others

Source: Company, MOSL.

Note: Others include employees in IT, HR, Treasury

Exhibit 43:

Credit appraisal process for secured business loan

Origination : Through Direct Calling

by Sales Team

Request for Information: RM

collect information documents

from client

Files Login & Lead Generation :

File submitted to Credit Team for

Case proposed for approval to

Approving Authority

Personal Discussion with

Business Head and Credit Head

Filing of Valuation, Legal

Reports, ROC Search, Banking

and Financial Analysis

Post Approval, Initiation of

Documentary Compliances and

Fulfillment of Sanction

Conditions

Disbursement Initiation including

signing of Legal Agreement

Complete File sent to Operations

team and Funds Transferred.

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Well capitalized to support business growth

AUBANK has a strong CAR/tier-1 of ~20.6%/19.7% as at 2QFY18 against the

regulatory minimum CAR of 15% (7.5% minimum tier-1). Unlike scheduled

commercial banks, SFBs are not required to maintain any capital conservation buffer

or any counter-cyclical capital buffer while the Tier-1 requirement is also lower. This

enables them to operate on a higher leverage than scheduled banks. We note that

with the current projections on growth and profitability, AUBANK is well-capitalized

to support its balance sheet growth for FY18/19e. We project CAR to decline to

16.8% (15.0% tier-1) by FY19e, as we model 42% CAGR in loan growth over FY17-20e

and expect the next round of capital raising in 2HFY19e/FY20e.

Exhibit 44:

RWA as a % of assets

113

RWA (% of assets)

104

103

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

Exhibit 45:

AUBANK is well capitalized to support 35% AUM CAGR over FY17-20e

27.2

Tier I Capital

Tier II Capital

23.2

24.1

18.3

18.8

17.3

15.8

1.5

FY15

16.9

19.2

21.1

17.0

13.5

3.4

2.1

FY17

2.2

FY18E

16.8

15.0

1.8

FY19E

16.0

CAR

14.9

3.1

3.5

15.7

3.1

13.3

2.7

FY20E

FY12

FY13

FY14

FY16

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Transition to SFB will cause transient earnings disruption

Transitioning to small finance bank (SFB) offers AUBANK significant growth potential

and the management has aspirations to make AUBANK a retail-focused, preferred

and trusted SFB. A diverse loan book, wide geographical presence, and strong

underwriting skills across segments will enable AUBANK to complete its SFB

transition expeditiously. It has converted most of its NBFC branches into bank

branches/asset centers and has been focusing on attracting new customers and

cross-selling newly-launched products to its existing customers. This has also helped

it in raising INR19.8b of deposits in the short span of its banking operations.

While transitioning into an SFB will impact return ratios on account of (i) negative

carry due to CRR/SLR, resulting in margin compression, and (ii) higher operating

expenses due to investments in technology, branches, employees, etc, we expect

the return ratios to bounce back to healthy levels over FY19-20e. AUBANK has

cumulatively spent INR710m on technology and INR1, 850m on branch

infrastructure, while it has added 5,500 employees over the past two years, which

would keep its cost ratios elevated in the near term. We expect RoA/RoE to bottom

out at 1.8%/14.3% in FY18, and then recover to 1.94%/20.1% by FY20e.

Exhibit 46:

AUM growth to remain strong at 35% CAGR over

FY17-20e

Total AUM (bn)

Gr. YoY (%)

2.5

2.3

Exhibit 47:

Cost-income ratio likely to moderate to 49% by

FY20e

Cost to Income

Cost to Assets 3.4

2.8

3.7

3.0

50.6

50.2

3.7

3.5

48.9

45.2

FY12

FY13

FY14

FY15

FY16

107

144

194

267

FY13

40.2

FY14

36.6

FY15

40.9

FY16

39.3

FY17

FY18E FY19E FY20E

Source: Company, MOSL

FY17 FY18E FY19E FY20E

Source: Company, MOSL

Exhibit 48:

Expect RoE to recover to 20.1% by FY20e, after

bottoming out at 14.3% in FY18…

ROE

21.1

14.9

15.7

15.8

17.0

13.5

15.0

13.3

Tier 1

Exhibit 49:

…led by steady improvement in RoA to 1.94% by

FY20e

RoA (Off balance Sheet)

2.8

2.6

2.5

1.7

1.8

1.4

1.9

17.8

FY13

13.6

FY14

19.9

FY15

23.3

FY16

20.4

FY17

14.3

17.3

20.1

FY13

FY14

FY15

FY16

FY17

FY18E FY19E FY20E

Source: Company, MOSL

FY18E FY19E FY20E

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

What differentiates AUBANK from other SFBs

AUBANK is well positioned to scale up its operations as an SFB owing to its rich

experience across diverse lending products and deep under-penetration in states in

which it operates. It has reported healthy traction in building its liability franchise

over the early days of its banking operations, backed by its wide branch/customer

network and smart pricing of deposits. We note that deposit rates offered by

AUBANK are attractive enough to compete with other leading universal banks; yet,

they are lower than what many other SFBs are offering. On the lending side, too, we

note that AUBANK’s MCLRs are significantly lower than most other SFBs, which

enables it to competitively price its loans and focus on business growth. The strategy

to contiguously grow the branch network and rapidly scale up asset and liability

operations will enable AUBANK to expedite its SFB transition and report healthy

bounce-back in earnings over FY18-20e.

Exhibit 50:

Trend in RoE for listed SFBs

FY13

FY14

FY15

FY16

FY17 FY18E FY19E FY20E

Source: Company, Bloomberg, MOSL

Equitas

Ujjivan

Exhibit 51:

RoA profile of listed SFBs

4.0

3.0

2.0

1.0

0.0

FY13

FY14

FY15

FY16

FY17

FY18E FY19E FY20E

Source: Company, Bloomberg, MOSL

AU (incl off BS AUM)

Equitas

Ujjivan

Exhibit 52:

Cost to income comparison across listed SFBs

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Source: Source: Company, Bloomberg, MOSL

AU SFB

Equitas

Ujjivan

Exhibit 53:

Loan growth comparison across listed SFBs

100

FY13

FY14

FY15

FY16

FY17 FY18E FY19E FY20E

AU SFB

Equitas

Ujjivan

Source: Source: Company, Bloomberg, MOSL

8 January 2018

AU Small Finance Bank

Exhibit 54:

SA rate comparison across SFBs and select private banks

Particulars

Less Than INR 1 lac

INR 1 lac to less than 10 Lacs

10 Lacs & above

1 Cr & upto 10 Cr

above 10 cr

AU SFB

5.0%

6.0%

6.5%

Equitas

6.0%

6.5%

Ujjivan

4.0%

Capital

Disha

SFB

(Fincare)

4.0%

6.0%

4.0%

7.0%

ESAF

6.0%

6.5%

7.0%

Suryoday Utkarsh

6.3%

7.3%

7.0%

6.0%

Yes

5.0%

6.0%

6.3%

IndusInd

4.0%

5.0%

5.5%

6.0%

Kotak

5.0%

6.0%

5.5%

Source: Company, MOSL

Exhibit 55:

MCLR rates across SFBs – AUBANK has one of the lowest MCLR rates amongst SFBs (barring Capital SFB)

Particulars

Overnight MCLR

One month MCLR

Three month MCLR

Six month MCLR

One year MCLR

AU SFB

11.9%

12.4%

12.9%

Equitas

15.9%

16.0%

16.1%

16.2%

Ujjivan

16.1%

16.2%

16.3%

16.4%

Capital SFB

9.5%

Disha (Fincare)

15.4%

15.6%

15.8%

15.9%

Suryoday

16.5%

16.6%

16.7%

Utkarsh

13.8%

13.9%

14.0%

14.1%

14.4%

Source: Company, MOSL

Exhibit 56:

Peak term deposit rates across SFBs – AUBANK’s term deposit rates generally stand in the middle amongst SFBs

Banks

Equitas

AU SFB

Ujjivan

Capital SFB

Disha (Fincare)

ESAF

Suryoday

Utkarsh SFB

0-3 mths

6.3%

6.0%

6.3%

6.0%

4.0%

6.8%

5.0%

4.5%

3-6 Mths

6.5%

6.8%

6.5%

6.0%

6.8%

5.5%

6mths to 1 yr

7.0%

7.5%

6.8%

7.0%

7.5%

7.8%

7.5%

1yr to 3yr

7.3%

7.4%

8.0%

7.1%

9.0%

8.8%

8.4%

>3 yrs

7.0%

7.3%

7.0%

8.0%

7.5%

7.8%

7.0%

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

A quick snapshot of SFBs

Exhibit 57:

Snapshot as on FY15 – few months before receiving the in-principle approval for setting up a Small Finance Bank

(FY15)

NII (INRb)

Total income (INRb)

Opex (INRb)

Operating profit (INRb)

PAT (INRb)

Borrowings (INRb)

Deposits (INRb)

Advances - on Book (INRb)

Total assets (INRb)

AUM (incl off BS) (INRb)

GNPA (%)

NNPA (%)

Tier 1 ratio (%)

Tier 2 ratio (%)

CRAR (%)

ROE (%)

ROA (%)

NIM (%)

Branches

Employees

AU SFB

3.61

4.24

1.55

2.69

1.40

28.8

34.0

40.3

55.7

1.0

0.5

15.8

1.5

17.3

19.91

4.01

10.32

232

3,553

Equitas

3.55

1.06

2.47

2.14

1.06

30.9

34.6

44.6

40.1

1.1

0.8

11.15

2.96

12.07

361

3,925

Ujjivan

2.79

3.40

2.04

1.35

0.75

31.2

32.2

39.8

32.7

0.1

0.0

21.7

2.5

24.2

13.67

2.50

11.62

423

6,547

Capital SFB

0.54

0.66

0.47

0.19

0.14

0.6

15.1

9.3

16.8

9.3

0.4

0.1

8.9

6.3

15.2

16.80

0.92

3.53

Jana Bank

3.18

4.34

3.01

1.33

0.75

18.8

10.6

50.0

37.6

0.7

0.5

26.8

1.2

28.0

9.45

2.00

234

6,793

Suryoday

0.55

0.63

0.35

0.28

0.17

3.0

5.4

7.6

5.8

0.1

0.0

21.5

4.4

25.9

15.4

2.9

240

1,752

Utkarsh

0.52

0.69

0.39

0.30

0.16

4.4

6.2

9.4

7.2

22.2

12.9

35.1

12.9

2.6

342

Source: MOSL, Company

Exhibit 58:

Snapshot as on FY17 – nearly two years after receiving the Small Finance Bank license

FY17

Date of commencing the SFB operations

Head office

NII (INRb)

Total income (INRb)

Opex (INRb)

Operating profit (INRb)

PAT (INRb)

Borrowings (INRb)

Deposits (INRb)

Advances (on Book) (INRb)

Total Assets (INRb)

AUM (incl off BS) (INRb)

GNPA (%)

NNPA (%)

Tier 1 ratio (%)

Tier 2 ratio (%)

CRAR (%)

ROE (%)

ROA (%)

NIM (%)

Branches

Employees

AU SFB

19-Apr-17

Jaipur

7.29

8.87

3.49

5.38

8.22

70.7

63.9

98.1

107.3

1.7

1.1

21.1

2.1

23.2

20.36

3.79

9.06

301

8,515

Equitas

5-Sep-16

Chennai

8.55

9.69

6.15

3.54

1.59

65.4

18.8

58.3

94.4

71.2

3.5

1.5

32.3

3.2

35.5

8.9

2.0

10.8

610

13,367

Ujjivan

6-Feb-17

Bengaluru

8.06

8.55

4.58

3.97

2.08

29.4

1.0

45.8

84.8

63.8

3.7

0.0

113.8

0.0

113.8

14.1

2.9

12.6

457

10,167

Capital SFB

13-Apr-16

Jalandhar

0.74

0.94

0.71

0.23

0.15

1.2

23.8

13.6

27.2

13.6

1.0

0.7

14.5

8.5

23.0

3.54

Jana Bank

Bangalore

14.78

17.46

11.90

5.56

1.70

67.3

47.6

150.5

128.1

1.7

0.6

17.1

6.8

23.9

7.35

1.28

11.97

462

16,357

Suryoday

Utkarsh

23-Jan-17

Navi

Varanasi

Mumbai

1.38

1.83

1.37

2.39

1.01

1.38

0.38

1.01

0.15

0.34

10.2

22.9

0.2

0.1

8.2

15.9

16.0

26.7

9.6

16.1

6.2

3.8

48.0

17.2

5.7

8.7

53.6

25.9

4.3

1.2

0.95

11.5

224

378

2,156

3,845

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Exhibit 59:

Product offering of SFB’s

Loan Products

Business loans & others

SME /MSME

LAP

Personal & consumer loans

Gold loan

Auto / Car loan

CV/CE

2W/ 3W

Housing

AU SFB



To be launched

in 1QFY19e

Equitas



Source: Company, MOSL

Ujjivan



Capital SFB



Suryoday



Utkarsh



Exhibit 60:

Loan mix as of 2QFY18

AU SFB

Wheels

Secured MSME

Secured SME

Gold loans

NBFC

RE group

Business banking

47.7

30.0

7.7

0.0

8.4

5.8

0.4

Equitas

Micro finance

Vehicle finance

M-LAP

Housing finance

Business loans

Agri loans

Gold loans

Others

36.1

28.3

24.4

4.1

3.4

1.8

0.4

1.1

Source: Company, MOSL

Ujjivan

Microfinance –grp loans

Microfinance –individual loans

MSE

Housing

85.2

10.5

1.8

2.5

8 January 2018

AU Small Finance Bank

SWOT analysis…



AUBANK has established itself as a strong SFB across multiple

secured product lines

The bank has little geographical overlap with other SFB’s

which limits the competition among existing players

It has created customized products and services to cater to

the evolving needs of its customers



Strength



Concentration risk: AUBANK has significant exposure to

the top four states, which together account for ~90% of its

loan book

Being a dominantly wholesale-funded entity, a rising

interest rate environment may adversely impact

borrowing costs, and hence, profitability



Weaknesses



Leveraging technology along with doorstep servicing would

enable AUBANK in rapidly gaining market share

AUBANK operates in underpenetrated geographies which

offers it strong growth potential

The bank is yet to launch several other key lending

products which will accelerate its business growth



Opportunities



With increasing credit penetration bargaining power of

borrowers has increased. SFBs may also lose business to

other banks on account of refinancing as economy gets

further formalized

With several new banks, fintech companies and existing

banks vying for same talent pool, nurturing and retaining

the key management personnel can be a challenge



Threats

8 January 2018

AU Small Finance Bank

Bull & Bear case

Bull Case



In our bull case, we assume strong AUM CAGR of 44% (v/s 35% in base case).

We believe scale up of housing finance business and growth in MSME/SME

business could surprise on the upside.

We expect margins to increase slightly to 8.1% in FY19e, aided by faster build-up

of liability franchise. Credit deposit ratio should improve to 111% by FY20e (v/s

122 % in our base case).

We expect significant cost control, with cost-to-income ratio declining to 45% by

FY20e (v/s 49% in our base case).

Asset quality would be slightly better, with GNPA of 1.65% by FY20e (v/s 2.91%

in our base case).

This results in PAT CAGR of 40% (v/s 25% in our base case) over FY17-20e, with

RoA/RoE of 2.0%/21.3% in FY20e.

Based on the above assumptions, we value AUBANK at INR825 (6.6x Mar-20E

BV) – an upside of 18%.

Bear Case



In our bear case, we assume AUM CAGR of 31% (v/s 35% in our base case).

Delay in scaling up the newly-launched lending products and modest trend in

SME segment may result in such a scenario.



We expect margins to decline to 7.3% in FY19e, particularly as we moderate our

estimates on deposit growth. We thus expect credit-deposit ratio of 145% by

FY20e (v/s 122% in our base case).



We expect cost ratios to spike, resulting in C/I ratio increasing to 58% by FY20e

(v/s 49% in our base case).



Asset quality is likely to deteriorate with higher slippages coming in from newly

launched segments. Accordingly, we model in GNPL ratio of 3.3% by FY20e (v/s

2.91% in our base case).



This results in PAT CAGR of 12% (v/s 25% in our base case) over FY17-20e, with

RoA/RoE at 1.5%/15.3% in FY20e.



Based on the above assumptions, we value AUBANK at INR450 (4.3x Mar-20E

BV) – a downside of 35%.

Exhibit 61:

Scenario Analysis – Bull Case

Bull Case

NII

Opex

Provisions

PBT

PAT

NIM (%)

RoA (%)

RoE (%)

EPS

Target multiple

Target price (INR)

Upside (%)

FY18E

10,929

6,326

1,369

4,859

3,398

8.3

1.8

14.7

12.0

82.1

6.6

825

18%

FY19E

15,572

9,380

1,396

7,211

4,886

8.1

1.9

17.9

17.2

97.7

FY20E

21,939

12,453

1,887

10,300

7,146

7.9

2.0

21.3

25.1

120.3

Exhibit 62:

Scenario Analysis – Bear Case

Bear Case

NII

Opex

Provisions

PBT

PAT

NIM (%)

RoA (%)

RoE (%)

EPS

Target multiple

Target price (INR)

Downside (%)

FY18E

8,789

6,402

1,285

3,719

2,436

7.6

1.5

11.5

8.6

78.8

4.3

450

35%

FY19E

12,108

9,068

1,624

4,901

3,450

7.3

1.5

13.8

12.1

90.6

FY20E

15,944

12,003

2,058

6,511

4,264

6.8

1.5

15.3

15.0

105.3

Source: Company, MOSL

8 January 2018

AU Small Finance Bank

Valuations full; remain convinced about long term story



We expect AUBANK to deliver steady improvement in earnings/return ratios

from FY19E onwards, particularly as it absorb the costs related to SFB migration

in FY18E. We believe that strong credit underwriting, wide geographical

presence and committed management (~33% promoter stake) will enable

AUBANK to undertake the SFB transition with limited disruption.

We expect earnings to grow at 42% CAGR over FY18-20e, and RoE to gradually

improve to 20.1% after bottoming out at 14.3% in FY18.

AUBANK has demonstrated the capability to build a quality retail franchise as

evident in its performance across lending segments. While near-term returns

will likely be limited on account of subdued earnings in FY18E and expensive

valuations, we believe that AUBANK has the potential to emerge as a strong SFB

over the long term. We believe AUBANK has the potential to make it big

amongst SFBs.

While the stock valuations appear full and in the near term leaves little for

investors, we believe strong management track record, 42% projected earnings

CAGR, and secured retail portfolio will enable AUBANK to sustain its premium

multiples.

We value AUBANK using two-stage GGM at INR705, which corresponds to 5.9x

Mar-20E BV. While we appreciate the long term opportunity that AUBANK

presents we believe that the stock is fairly valued at current valuations

96%

higher than the issue price

)

. We thus initiate coverage with a Neutral rating and

TP of INR705 (5.9x Mar-20E BV, 32.1x FY20E EPS). We believe that the stock’s

valuation will remain highly sensitive to business growth and recovery in return

ratios.

Exhibit 63:

P/B vs RoE - FY19E

Axis BK

Source: Company, MOSL

Yes BK

Kotak

AU SFB

IndusInd

HDFC BK

8 January 2018

AU Small Finance Bank

Exhibit 64:

Dupont analysis

Y/E March

Net Interest Income

Core Fee and Secu. Inc

Total Income

Operating Expenses

Employee cost

Others

Core operating Profits

Non Interest income

Trading and others

Operating Profits

Provisions

PBT

Tax

RoA

RoE

FY15

6.47

1.13

7.61

2.79

1.70

1.09

4.82

1.14

0.00

4.82

1.09

3.74

1.22

2.52

19.91

FY16

7.15

1.05

8.22

3.36

2.09

1.27

4.84

1.06

0.02

4.86

0.58

4.28

1.47

2.80

23.25

FY17

6.33

1.30

7.70

3.03

1.67

1.35

4.60

1.37

0.07

4.67

0.57

4.10

1.46

2.65

20.36

FY18E

5.98

1.34

7.41

3.75

2.28

1.47

3.58

1.42

0.08

3.66

0.90

2.75

0.94

1.82

14.34

FY19E

5.94

1.26

7.30

3.67

2.28

1.39

3.33

1.36

0.10

3.63

0.77

2.86

0.97

1.89

17.33

FY20E

5.83

1.18

7.12

3.48

2.20

1.28

3.53

1.29

0.11

3.64

0.71

2.93

1.00

1.94

20.15

Exhibit 65:

Valuation comparison

Particulars

SFB’s

Equitas

Ujjivan

AU SFB

NBFC’s

Bajaj Finance

Shriram Transport

Banks

HDFC Bank

Yes Bank

IndusInd Bank

Kotak Bank

Loan Book

(INRb)

2Q18

121

721

855

6,049

1,487

1,232

1,526

Price

(INR)

157

408

697

1,811

1,485

1,864

333

1,700

1,003

MCap

(INRb)

199

1039

337

4,776

760

1.012

1,840

PAT

PAT CAGR

(INRb)

(F17-F20E)

(FY18E)

0.6

0.2

3.1

26.2

18.0

176.1

40.6

36.4

61.0

25%

40%

32%

23%

26%

33%

26%

ROA

(%)

FY18E

0.6

0.1

1.8

3.5

2.7

1.9

1.7

1.8

FY19E

1.6

1.9

3.6

3.1

1.9

1.8

1.9

ROE

(%)

FY18E

2.6

0.8

14.3

20.2

15.1

18.8

17.3

16.9

12.7

FY19E

8.2

12.4

17.3

20.4

17.4

20.4

19.5

19.0

13.5

P/B

(x)

FY18E

2.3

2.8

8.6

6.4

2.6

4.9

3.0

4.4

4.3

FY19E

2.2

2.5

7.2

5.3

2.3

4.1

2.6

3.7

P/E

(x)

FY18E

90.8

64.4

39.6

18.4

27.1

18.7

27.9

31.3

FY19E

27.4

24.1

45.2

28.4

14.0

22.0

14.3

21.6

24.1

Note: For Equitas, Ujjivan, AU Bank, Bajaj Finance, Shriram Transport Loan book represents AUM

Source: Company, MOSL

Risks



Building and scaling up SFB operations needs significant investments in

technology, infrastructure and staff cost, besides complying with rigorous SFB

guidelines, and thus, carries execution risk.

Scaling up newly-launched asset products and building a strong liability

franchise will be key to growth and profitability. Any delays here will adversely

impact valuations.

Operating cost may remain elevated, as AUBANK successfully completes its

transition to an SFB. Besides, complying with SFB guidelines on branch mix, PSL

targets, etc., may also affect return ratios.

Top-four states account for ~90% of AUBANK’s loan book and this poses

concentration risk.

8 January 2018

AU Small Finance Bank

Annexure

SFB guidelines – a recap

To promote financial inclusion, the RBI had issued in-principle approval for the set-

up of 11 payments banks and 10 SFBs in 2015. SFBs are primarily intended to cater

to the unserved and underserved sections of the population, including small

business units and micro and small industries. SFBs can also undertake other simple

financial services activities, such as the distribution of mutual fund units, insurance

products, and pension products.

Exhibit 66:

List of entities awarded SFB licenses by RBI

Sr.No

Particulars

Au Financiers (India) Ltd

Capital Local Area Bank Ltd

Disha Microfin Private Ltd

Equitas Holdings P Limited

ESAF Microfinance and Investments Private Ltd

Janalakshmi Financial Services Private Limited

RGVN (North East) Microfinance Limited

Suryoday Micro Finance Private Ltd

Ujjivan Financial Services Private Ltd

Utkarsh Micro Finance Private Ltd

State

Jaipur

Jalandhar

Ahmedabad

Chennai

Bengaluru

Guwahati

Navi Mumbai

Bengaluru

Varanasi

Source: Company, MOSL

The entities eligible to set up an SFB include resident individuals or professionals

with 10 years of experience in banking and finance, companies and societies,

existing NBFCs, microfinance institutions, and local area banks. The minimum paid-

up equity capital for SFBs is INR1b. SFBs are subject to all prudential norms and RBI

regulations applicable to existing commercial banks, including the requirement to

maintain cash reserve ratio and statutory liquidity ratio. They are also required to

have 25% of all branches in unbanked rural centers within one year from the date of

commencement of operations. The priority sector lending requirement for SFBs is

75% of ANBC of prior year v/s 40% for universal banks. Also, at least 50% of an SFB’s

loan portfolio should constitute loans and advances of a size up to INR2.5m.

Exhibit 67:

Small finance banks vs Scheduled commercial banks

Parameter

Capital Measurement Approach

SFBs

Basel III standardized approach. External

rating based risk weight for rated

exposure & regulatory retail approach for

small retail loans

15%

1.5%

7.5%

N/A

7.5%

6% till Mar’19; 7% after Mar’19

SCBs

Basel III

Minimum CAR

CET1

AT1

Minimum Tier 1 Capital

CCB

CCCB

Maximum Tier II Capital

Pre-specified trigger for conversion of AT1

11.5% by Mar’19

8% by Mar’19 (including CCB)

1.5%

9.5% by Mar’19

2.5% by Mar’19

Maximum up to 2.5%, not applied as of

now

CET1>5.625% till Mar’19; CET1>6.125%

after Mar’19

8 January 2018

AU Small Finance Bank

Exhibit 68:

Banks Vs NBFC ND

Parameter

For the year ended

Minimum net owned funds

Capital adequacy

Mar-15

Tier-I Capital

Mar-16

Mar-17

Mar-15

Mar-16

GNPA recognition

Mar-17

Mar-18

CRR

SLR

Priority sector

SARFAESI eligibility

Exposure norms

Mar-15

Mar-16

Mar-17

Mar-18

NBFC-ND-SI

Banks (Basel-III)

INR20m

INR5b

15.0%

9.0%

7.5%

7.0%

8.5%

7.625%

10.0%

8.25%

180 days

90 days

150 days

90 days

120 days

90 days

N.A

4.0%

N.A

19.5%

N.A

40% of advances

Yes

Single borrower: 15% (+10% for IFC) Single borrower: 15% (+5% for infrastructure projects)

Group of borrowers: 25%

Group of borrowers: 40%

(+15% for IFC)

(+10% for infrastructure projects)

0.25%

0.40%

0.30%

0.40%

0.35%

0.40%

Source: Company, MOSL

Standard asset provisioning

Exhibit 69:

AUBANK: number of active loan accounts

Number of loan accounts

State

Rajasthan

Maharashtra

Gujarat

Madhya Pradesh

Delhi

Punjab

Chhattisgarh

Haryana

Himachal Pradesh

Goa

Total

As at FY13

No. of active

% of Total

loan a/c

73,789

50%

35,706

24%

24,593

17%

5,358

616

4,097

1,158

960

146,277

100%

As at FY17

No. of active

% of Total

loan a/c

132,747

47%

42,633

15%

39,564

14%

31,837

11%

13,891

12,396

3,055

2,195

1,433

598

280,349

100%

Source: Company, MOSL

32.97

15.82

7.99

3.80

3.95

3.62

2.42

1.71

1.58

1.22

1.15

Source: Company, MOSL

Exhibit 70:

List of key shareholders as on Sep’17

Name

Promoter Group

Redwood investments (Warburg Pincus)

International finance Corp

Labh Investment ltd (Chrys capital VI LLC)

Ourea holdings (Kedara Capital I)

SBI mutual fund (through its various MF schemes)

Mysore holdings

MYS holdings

ICICI prudential life insurance

SBI life insurance

Motilal Oswal asset management (through various MF schemes)

Amansa capital

Motilal Oswal securities ltd

8 January 2018

AU Small Finance Bank

Financials and valuations

Income Statement

Y/E MARCH

Interest Income

Interest Expense

Net Financing income

Change (%)

Income from Sec.

Net Income (Incl Secur)

Change (%)

Other Income

Net Income

Change (%)

Operating Expenses

Change (%)

Operating Profits

Change (%)

Total Provisions

% to operating income

PBT

Exceptional items

PBT including exceptional

Tax

Tax Rate (%)

PAT

Adjusted PAT

Change (%)

Change in Adj PAT (%)

2012

1,552

1,033

519

697

1,216

1,224

661

563

10.4

504

181

35.9

323

2013

3,370

1,972

1,398

169.6

711

2,109

73.4

2,133

74.2

965

45.9

1,168

107.6

168

14.4

1,001

333

33.3

668

106.4

2014

4,984

2,876

2,108

50.8

656

2,764

31.1

2,822

32.3

1,134

17.6

1,688

44.4

607

36.0

1,081

371

34.3

709

6.3

2015

6,429

2,820

3,609

71.2

610

4,219

52.7

4,243

50.4

1,554

37.0

2,690

59.4

606

22.5

2,084

681

32.7

1,402

97.7

2016

9,351

3,953

5,399

49.6

753

6,152

45.8

6,202

46.2

2,538

63.3

3,665

36.2

438

12.0

3,226

1,110

34.4

2,116

50.9

2017

12,298

5,003

7,294

35.1

1,441

8,736

42.0

135

8,871

43.0

3,489

37.5

5,382

46.9

652

12.1

4,730

6,703

11,433

3,214

28.1

8,220

3,400

288.4

60.7

2018E

17,069

6,949

10,119

38.7

1,934

12,054

38.0

473

12,527

41.2

6,337

81.6

6,190

15.0

1,530

24.7

4,660

1,585

34.0

3,076

-62.6

-9.5

2019E

23,567

9,787

13,780

36.2

2,206

15,986

32.6

947

16,933

35.2

8,508

34.3

8,425

36.1

1,790

21.2

6,635

2,256

34.0

4,379

42.4

2020E

32,446

13,854

18,593

34.9

2,453

21,046

31.7

1,657

22,703

34.1

11,093

30.4

11,610

37.8

2,253

19.4

9,356

3,181

34.0

6,175

41.0

Balance Sheet

Y/E MARCH

Equity Share Capital

Reserves & Surplus

Equity Networth

Interest bearing liabilities

Change (%)

Other liabilities

Change (%)

Total Liabilities

Loans

Change (%)

Investments

Net Fixed Assets

Other assets

Total Assets

Total Assets (incl. off BS)

AUM Mix

AUM (INR b)

Change (%)

On BS (%)

Off BS (%)

2012

184

2,891

3,075

7,285

1,211

11,571

9,141

309

154

1,968

11,571

27,974

2013

405

4,014

4,419

24,821

1,889

31,128

18,432

7,387

168

5,142

31,128

49,740

2014

430

5,548

5,978

21,300

2,308

29,586

24,560

1,136

169

3,721

29,586

49,516

2015

441

7,667

8,108

28,783

3,462

40,353

34,040

1,398

194

4,721

40,353

61,990

2016

441

9,654

10,094

47,826

5,022

62,942

56,208

2,316

246

4,172

62,942

88,947

2017

2,843

17,033

19,876

70,710

7,531

98,117

63,900

21,503

2,758

9,956

98,117

141,556

2018E

2,843

20,186

23,029

111,745

8,661

143,497

90,721

30,104

6,896

14,275

143,497

196,777

2019E

2,843

24,662

27,504

160,572

12,991

201,129

128,034

41,544

13,103

16,574

201,129

267,086

2020E

2,843

30,957

33,800

236,408

17,538

287,807

184,122

60,239

22,930

18,079

287,807

370,529

25,543

35.8

64.2

37,043

45.0

49.8

50.2

44,490

20.1

55.2

44.8

55,677

25.1

61.1

38.9

82,213

47.7

68.4

31.6

107,339

30.6

59.5

40.5

144,002

34.2

63.0

37.0

193,991

34.7

66.0

34.0

266,844

37.6

69.0

31.0

8 January 2018

AU Small Finance Bank

Financials and valuations

Ratios

Y/E MARCH

Spreads Analysis (%)

Avg. Yield - on loans

Avg. Yield - on earning assets

Avg. Cost of funds

Spreads

NIM

NIM (Incl off balance sheet)

Profitability Ratios (%)

RoE

RoA (On balance Sheet)

RoA (incl off BS AUM)

Op. Exps./Net Income

Empl. Cost/Op. Exps.

Asset-Liability Profile (%)

Net NPAs to Adv.

Debt/Equity (x)

Assets/Equity (Avg)

Assets/Equity (Avg - Incl off)

CAR

Tier I

Valuations

Book Value (INR)

BV Growth (%)

Price-BV (x)

EPS (INR)

EPS Growth (%)

Price-Earnings (x)

E: MOSL Estimates

2012

2013

22.8

19.1

12.3

6.8

7.9

6.0

2014

22.1

19.3

12.5

6.9

8.2

6.1

2015

21.4

21.0

11.3

9.8

11.8

8.2

2016

20.5

19.9

10.3

9.6

11.5

8.7

2017

20.3

17.1

8.4

8.6

10.1

8.2

2018E

19.8

16.4

7.6

8.8

9.8

7.9

2019E

19.3

16.0

7.2

8.9

9.5

7.7

2020E

18.6

15.5

7.0

8.5

9.0

7.4

54.0

58.4

17.8

3.1

1.7

45.2

54.6

13.6

2.3

1.4

40.2

61.4

19.9

4.0

2.5

36.6

60.8

23.3

4.1

2.8

40.9

62.2

20.4

3.8

2.6

39.3

55.2

14.3

2.5

1.8

50.6

60.8

17.3

2.5

1.9

50.2

62.1

20.1

2.5

1.9

48.9

63.3

0.2

2.4

27.2

24.1

0.3

5.6

5.7

10.4

18.3

14.9

0.6

3.6

5.8

9.5

18.8

15.7

0.5

3.6

5.0

7.9

17.3

15.8

0.4

4.7

5.7

8.3

16.9

13.5

1.1

3.6

5.4

7.7

23.2

21.1

2.0

4.9

5.6

7.9

19.2

17.0

1.8

5.8

6.8

9.2

16.8

15.0

1.5

7.0

8.0

10.4

16.0

13.3

109.2

139.1

27.4

17.0

183.9

32.2

89.4

228.9

24.5

48.0

49.0

69.9

-69.5

18.6

-61.3

81.0

15.9

8.6

10.8

-41.8

64.4

96.8

19.4

7.2

15.4

42.4

45.2

118.9

22.9

5.9

21.7

41.0

32.1

8 January 2018

REPORT GALLERY

RECENT INITIATING COVERAGE REPORTS

AU Small Finance Bank

NOTES

8 January 2018

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock

broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed

public company, the details in respect of which are available on

www.motilaloswal.com.

MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock

Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited

(CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are

available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:

SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold

inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice. The matter is currently

pending.

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in

the subject company at the end of the month immediately preceding the date of publication of the Research Report.

MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from

time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn

brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential

conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the

recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research

report.

Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may have received any compensation from the subject company in the past

12 months.

In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:

managed or co-managed public offering of securities from subject company of this research report,

received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,

received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.

Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.

MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure

of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with

companies covered in its research reports. As a result, the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research

Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

Terms & Conditions:

This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to,

copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered

true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not

been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice.

The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though

disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or

indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

AU Small Finance Bank

Disclosure of Interest Statement

Analyst ownership of the stock

AU Small Finance Bank

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary

trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to

subject company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,

regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)

pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with

Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any

investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities,

products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research

Analysis in Hong Kong.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is

not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.

persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional

investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional

investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and

interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S.

registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and

therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

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subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in

the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following

representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person

or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of

offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or

appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations

as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to

determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative

products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the

views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time

without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities

mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities

functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already

available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is

being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not

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certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or

representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

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person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or

employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this

information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring

Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:

na@motilaloswal.com,

Contact No.:022-30801085.

Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:

INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS

(Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal

Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private

Equity products

8 January 2018