AU Small Finance Bank downgraded to 'Hold' by MarketsMOJO due to expensive valuation and underperformance.

AU Small Finance Bank, a largecap private bank, has recently been downgraded to a 'Hold' by MarketsMOJO on October 22, 2024. This decision was based on the bank's strong long-term fundamental strength, with an average Return on Assets (ROA) of 1.84%. Additionally, the bank has shown healthy long-term growth, with its Net Interest Income (ex other income) growing at an annual rate of 31.03% and Net profit at 28.17%. The bank also boasts a high Capital Adequacy Ratio of 0%, indicating a strong buffer against risk-based assets.
In terms of recent performance, AU Small Finance Bank has shown positive results in the June 2024 quarter, with its NII (Q) reaching a record high of Rs 1,920.58 crore. Its Interest Earned (Q) has also seen a significant growth of 53.32% at Rs 3,769.04 crore, and its PBDIT (Q) has reached a record high of Rs 442.47 crore.

However, the technical trend for the stock is currently sideways, indicating no clear price momentum. The trend has also deteriorated from Mildly Bullish on October 22, 2024, and has generated -4.78% returns since then.

On the institutional front, AU Small Finance Bank has a high institutional holding of 58.02%. These investors have better capability and resources to analyze the fundamentals of companies compared to most retail investors. Their stake in the bank has also increased by 1.39% over the previous quarter.

Despite its strong fundamentals, AU Small Finance Bank has a relatively expensive valuation with a 3.8 Price to Book Value and is currently trading at a discount compared to its average historical valuations. Over the past year, the stock has generated a return of -8.82%, while its profits have risen by 10.7%.

In the long term, the stock has underperformed the BSE 500 index, with -8.82% returns in the last year and underperformance in the last 3 years, 1 year, and 3 months. Based on these factors, MarketsMOJO has downgraded the stock to a 'Hold' recommendation.