Neutral AU Small Finance Bank; target of Rs 810: Motilal Oswal

Motilal Oswal's research report on AU Small Finance Bank

AUBANK reported 44% YoY growth in net earnings (in line), aided by healthy NII growth of 28% YoY and higher ‘other income’ (up 98% YoY). PPoP thus grew 39% YoY (down 4% QoQ, in line). Margins contracted 38bp QoQ to 5.7%. Gross advances/deposits grew strongly by 29%/27% YoY, and CASA deposits grew 15% YoY. CASA mix moderated to 35%. Absolute GNPAs/NNPAs increased 14%/42% QoQ. Thus, the headline in GNPA/NNPA ratios deteriorated 10bp/13bp QoQ to 1.76%/0.55%. We fine tune our estimates and expect AUBANK to deliver 28% earnings CAGR over FY23-25, with RoA/RoE of 1.9%/17.4% in FY25E. We retain our Neutral stance on the stock.

Outlook

We fine tune our estimates and expect AUBANK to deliver a 28% earnings CAGR over FY23–25, with RoA/RoE of 1.9%/17.4% in FY25E. We reiterate our Neutral rating with a TP of INR810 (3.7x FY25E BV).