MOSL: AU SMALL FINANCE BANK (Buy)-Strong overall performance; business momentum set to accelerate

AU SMALL FINANCE BANK: Strong overall performance; business momentum set to accelerate

(AUBANK IN, Mkt Cap USD5.3b, CMP INR1248, TP INR1400, 12% Upside, Buy)

 

• AUBANK reported a strong all round performance, with a 25% earnings beat, led by a healthy (40% YoY) NII growth and controlled provisions (14% below our estimate). NIM improved by 30bp QoQ to 5.6%, aided by a sharp improvement in the cost of funds and lower interest reversals.
• Asset quality trends were stable sequentially in a challenging environment, with slippages at INR2.5b (annual slippage ratio ~2.9%), while higher reductions of ~INR2.6b led to stable asset quality ratios. Collection efficiency stood at 101% in 1QFY22, which improved further in Jul’21. Total restructured book increased to 3.6% of loans. We increase our FY22E/FY23E earnings estimate by ~8%/~11%, and expect a RoA/RoE of 1.9%/17.6% in FY23E. We maintain our Buy rating.

 

Strong earnings beat; asset quality trends stable sequentially

• AUBANK reported a PAT of INR2b (25% beat) in 1QFY22, aided by a healthy NII and controlled provisions (14% below our estimate). NII grew 40% YoY to INR7.2b (6% above our estimate), aided by 20bp QoQ reduction in the cost of funds. NIM improved by 30bp QoQ to 5.6%. Other income fell 18% YoY to INR1.8b, led by a decline in fee/PSLC income.
• Opex fell 18% QoQ to INR4.6b. The C/I ratio stood at 50.3% v/s 59.9% in 4QFY21. PPOP grew ~1% YoY to INR4.5b. Core PPOP grew ~34% YoY.