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MOSL: AU SMALL FINANCE BANK (Buy)-Growth continues unabated-operating metrics to improve gradually

AU SMALL FINANCE BANK: Growth continues unabated; operating metrics to improve gradually

(AUBANK IN, Mkt Cap USD2.6b, CMP INR621, TP INR720, 16% Upside, Buy)

 

• PAT grew 21% YoY to INR0.95b (our estimate: INR1.04b) in 3QFY19. NII of INR3.5b (+39% YoY, +8% QoQ) came in 3% below our estimate, with the margins down 40bp QoQ to 5.6%. For 9MFY19, PPoP grew 20% YoY, while PAT increased 26% YoY.
• Other income stood muted at INR1.1b (-14% QoQ). Operating expenses increased 35% YoY (+2.6% QoQ) to INR2.7b, leading to a marginal rise in C/I ratio to 60.6%.
• AUM grew 62% YoY to INR217b, with strong growth in disbursements in vehicle and MSME books. Retail assets comprised 81% of gross AUM. Retail AUM grew 9% QoQ, while wholesale AUM declined 3.3% due to contraction in the NBFC book. Wheels/secured MSME/secured SME formed 43.0%/31.1%/4.0% of total AUM.
• Deposit base increased to INR146.8b, taking the CD ratio to ~136.2%. CASA ratio moderated further to ~20%. CASA + retail TD now forms 44% of the total liability franchise. Average cost of funds stood at 7.9% in 3Q (v/s 7.8% in 2QFY19).
• Fresh slippages stood at INR1.03b (4.1% annualized), driving a 13% QoQ increase in GNPLs. GNPL/NNPL ratios, thus, increased 6bp/3bp QoQ to 2.1%/1.3%. Provisions declined 1.3% YoY to INR325m, while PCR stood at 37.6%. GNPA ratio for retail/wholesale book stood at 2.5%/0.7%.
• Other highlights: (a) Tier 1 stands at 15.5%, with total CAR of 19%. (b) PSLC income of INR123m has been deferred while INR43.4m of PSLC expense is to be amortized.