Sharekhan's research report on AU Small Finance Bank
AU Small Finance Bank (AUSFB) reported steady performance in Q3FY2023, with PAT at Rs. 393 crore, aided by strong revenue growth, partly offset by higher costs and lower credit cost. However, the bank has utilised contingent buffers worth Rs. 31 crore during the quarter. NII growth was strong at 41% y-o-y/6% q-o-q, in line with advances growth. NIM was stable q-o-q at 6.2%. Core other income was up by 7% y-o-y/17% q-o-q, driven by healthy growth in disbursements, increasing contribution of bancassurance income, and rising share of transactional customers on the liability side. Operating profit grew by 21% y-o-y/11% q-o-q, led by strong revenue growth, but was offset by rising costs. Asset-quality performance remained strong with credit costs at just 0.24%, with lower slippages q-o-q (12%) and improvement in NPL ratios — GNPL at 1.81% and NNPL at 0.51%. The bank is comfortably placed with ~72% provision coverage on NPLs and excess loan provision of ~40 bps.
Outlook
The near to medium-term outlook looks stable to positive for the bank, except for cost of funds. The stock is currently trading at 3.8x/3.4x/2.9x its FY2023E/FY2024E/FY2025E ABV estimates, respectively. We maintain Buy with an unchanged PT of Rs. 800. We believe strong earnings growth would support the rich valuations.
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