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MOSL: AU SMALL FINANCE BANK (Buy)-Growth visibility high; investing for the long innings

(AUBANK IN, Mkt Cap USD2.8b, CMP INR655, TP INR760, 16% Upside, Buy)

 

• PAT of INR0.77b (+24% YoY) was driven by healthy revenue growth (+61% YoY) to INR3.9b. NII grew 56% YoY, while other income increased 78% YoY. However, elevated opex remained a drag on earnings. Operating expense grew 103% YoY (-11% QoQ) to INR2.4b, leading to a CI ratio of 60.8% (-245bp QoQ).
• Absolute GNPLs/NNPLs increased 23.6%/24.4% QoQ to INR3.3b/2.1b. GNPL/NNPL ratios, thus, increased 16bp/11bp QoQ to 2.17%/1.38%. Provisions, thus, increased to INR0.4b (+21% YoY), while the coverage ratio held largely stable at 36.8% (v/s 37.2% in 4QFY18). Management expressed comfort on the current coverage ratio; it expects the trend to improve in the SME segment.
• Gross AUM grew 61% YoY to INR173.2b (112% YoY growth in on-book loans), led by strong growth in disbursements across both the retail and wholesale segments. Retail assets constitute 82% of overall AUMs. Deposit base increased to INR100b as of 1QFY19, taking the CD ratio to ~173% (on total AUMs). CASA ratio moderated to 22.3%.
• Other highlights: (1) CAR improved 142bp QoQ to 20.7%. (2) PSLC income of INR324.6m has been deferred over the next three quarters. (3) INR8m of MTM losses will be amortized over the next three quarters.