AU Small Finance Bank reported slightly higher earnings (+4%) compared to our estimate, led by lower provisions However, the operating profit fell 9% YoY due to a weak treasury performance. While advances growth was strong at 43% YoY, lower
margin dragged NII growth to 35%. In 1QFY23, margin contracted by 40 bps QoQ to 5.9%. Gross NPAs increased by 5% QoQ . However, the GNP ration improved marginlly. The net NPA ratio grew 6 bps QoQ to 0.56%. PCR fell ~340 bps to 71.7%
We cut our FY-2023/24 PAT estimate by ~3%/11% as we build in a lower margin of 5.9% (v/s 6% earlier) and higher operational expenditure (OPEX) due to sustained investments in building the franchise. We expect AUBANK to deliver 26% earnings CAGR over FY22-24 and RoA/RoE at 1.8%/18.3% in FY24. We maintain our ‘buy’ rating.
Healthy transaction in deposits: lender AUBANK reported a 32% YoY growth in PAT at Rs
270 crore. While growth was marginally higher than our estimates, it declined 23% QoQ . NII grew 35% YoY to980 crore (in line), supported by a 43% YoY growth in advances, but the same was partially offset by a 40-bps QoQ decine in margin. Core free income grew 210% YoY,but fell 16% to QoQ.
Opex increased by 62% YoY as bank continues to invest in building the franchise. The C/I ration stood elevated t 65%. In the long run, the bank’s endevour is to pare it down to 5.0%
According to the management commentary, the bank is focused on building a tech-led robust retail franchise. The management has guided at a broad-based growth of 30% in advances on a sustainable basis with a similar asset mix.