AU Small Finance Bank (AU) registered healthy growth

23 Apr
MOney

AU Small Finance Bank (AU) registered healthy growth

 AU Small Finance Bank (AU) registered healthy growth in PAT aided by robust growth in AUM and higher operating efficiencies

 Key Financial Highlights

  • AU’s Net Interest Income (NII) grew by 35% YoY to INR 387 cr on back of 51% growth in AUM. NII grew at slower pace due to contraction in net interest margin (NIM). During the quarter,  NIM (Cal.) contracted to 6.2% as against 8.4% in Q4FY18 reflecting ~140 bps compression in calculated yields
  • Net Revenue increased by 23% YoY to INR 517 cr mainly due to 3% de-growth in other income to INR 131 cr. However, on back of operating efficiency, cost to income ratio improved by nearly 500 bps YoY to 58.3% As a result of this, PPOP registered 39% YoY growth to INR 216 cr. The management maintains its focus on improving operating efficiencies and will monitor the C/I ratio for couple of more quarters to confirm if the current C/I ratio can be sustained as trend
  • AU reported 42% growth in PAT at INR 118cr largely in-line with PPOP growth
  • AUM for the quarter increased by 51% YoY to INR 24,246cr on back of ~20% YoY growth in disbursements. Disbursements crossed INR 5000 cr for the first time in the quarter
  • Total deposits for the quarter increased by 145% YoY to INR 19,422cr, CASA ratio stood at 21% slightly lower from 24% seen in Q3FY19

Asset quality remained stable

  • Asset quality of the company remained stable on back of higher recovery  and lower write offs sequentially. AU reported INR 152cr of slippages against INR 103cr in Q3FY19 which is higher due to high growth in AUM
  • Also the company has considered some assets which are below 90 days overdue as GNPA based on internal risk assessment
  • Adjusted for this incremental GNPA of ~ INR 137 cr, the GNPA in absolute term stands at ~INR 330cr implying a PCR of ~50% as against reported PCR of ~37%
  • Gross NPA came in at 2.0% vs 2.1% in Q3FY19 and 2.0% in Q4FY18. Net NPA came in 1.3%, broadly remained unchanged

AUM growth remained buoyant     

  • AU reported strong growth in AUM at 51% for the quarter aided by healthy growth in disbursements. Retail & SME segments both grew 49% YoY. Retail growth was aided by GL + Agri SME + HL + CD* loans which grew staggering 573% YoY albeit on a lower base, OD against FD increased 146% YoY, wheels segment grew 43% YoY and MSME segment increased 55% YoY

                               *( GL – Gold Loans, HL – Home Loans, CD – Consumer Durable)

  • The management expects AUM growth to remain around 30+% going ahead with main focus on Wheels and MSME segments where yields are higher

 Other Highlights

  • Deposit base shifted towards retail as retail as % of SA increased from 73% in Q4FY18 to 89% in Q4FY19
  • This shift was visible in Term deposits as well as Retail TD share increased to 30% in Q4FY19 as compared to 22% in Q4FY18
  • Management focus will be to increase RoA on branch banking (Current RoA: -0.4%) and try to break even this year
  • Overall spreads/NIMs are expected to increase from Q2FY19 as incremental disbursements on higher yields form a larger part of the outstanding book while incremental costs are expected remain stable
  • Management expects to open 27 branches mainly in Mumbai, Pune, Delhi and Jaipur in FY20 which will be smaller branches as compared to full scale branches of 2,000 sq ft.

Valuation

  • At CMP of INR 610, the stock is trading 3.6x consensus FY21 BV and 24x FY21E EPS
INR Cr Q4FY19 Q4FY18 %change Q3FY19 %change
Interest Earned 877 532 64.9 788 11.2
Interest Expended 490 245 100.1 440 11.3
Net interest income 387 287 34.8 348 11.2
Other Income 131 135 -2.9 106 23.3
Net revenue 517 422 22.8 454 14.0
Operating expenses 302 267 13.1 275 9.7
Operating Profit 216 155 39.4 179 20.8
Provisions and Contingencies 39 30 32.5 33 20.7
PBT 176 125 41.0 146 20.8
Taxes 58 42 38.9 51 14.4
Adjusted PAT 118 83 42.1 95 24.2
Adj. EPS (INR) 4.0 2.9 38.9 3.3 24.1
Ratio (%)
C/I Ratio 58.3 63.3 -498 bps 60.6 -232 bps
Yield on Interest earning assets (IEA) 14.07 15.47 -140 bps 15.6 -154 bps
Cost of funds 8.99 8.65 34 bps 10.2 -121 bps
Spread 5.08 6.82 -174 bps 5.4 -33 bps
NIM 6.2 8.4 -214 bps 6.9 -68 bps
Balance Sheet
AUM 24,246 16,038 51.2 21,765 11.4
Loans & Advances 22,819 13,312 71.4 20,000 14.1
Borrowings 8,613 7,639 12.8 8,828 -2.4
Deposits 19,422 7,924 145.1 14,685 32.3
CASA (%) 21% 32% -11 bps 24% -300 bps
Asset Quality (%)
GNPA 2.0 2.0 4 bps 2.1 -6 bps
NNPA 1.3 1.3 -1 bps 1.3 -1 bps
Provision Coverage Ratio 36.8 35.0 176 bps 38.1 -133 bps

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