Emkay Global Financial's report on AU Small Finance Bank
AU SFB posted a PAT beat at Rs3.4bn (est: Rs3bn) in Q4FY22, led by better NII growth, higher fees and lower taxes, partly offset by higher opex as the bank continued to invest in the franchisee network. The GNPA ratio fell 60bps qoq to 2%, but RSA remained elevated at 2.5%. The bank finally raised its specific PCR to a comfortable level of 75% from 51%, drawing down the contingent buffer. AUM growth was strong at 27% yoy/14% qoq on the back of all-time high disbursements across loan products, including wheels, MSME and commercial banking. The bank has built a reasonable CASA ratio of 37%, offering a higher SA rate. However, we believe the bank will face some margin headwinds in a rising rate scenario, given its largely fixed-rate asset book. The bank has declared a share bonus in the ratio of 1:1 to improve stock float and also declared a dividend of Re1 (pre-bonus). The bank has also increased the number of independent directors to eight to allay concerns around corporate governance and exits in the audit/risk management team.
We upgrade our FY23-24 estimates by 5% on better growth trajectory/fees and moderating LLP, leading to healthy RoA/RoE of ~1.9%/18%-21%. Retain Hold with a TP of Rs1,340 (Rs1,275 earlier) rolling fwd to 4.2x FY24E ABV (vs. 4.5x Dec'23E ABV). With the completion of five years, the bank is eligible to apply for universal bank status. But we believe the bank should further strengthen its risk/compliance architecture before the planned transition.
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