HDFC Securities' research report on AU Small Finance Bank
AUBANK posted its highest-ever quarterly earnings on the back of lower-thanexpected credit costs (30bps annualised), partly offset by elevated operating expenses. The bank calibrated its loan growth (+38% YoY) to mirror the growth in deposits (~400bps QoQ rundown in CASA), resulting in moderation across segments such as wheels, home loans, and commercial banking. In a rising interest rate environment, AUBANK has chosen to remain conservative in order to protect its margins and asset quality. However, continued investments in franchise-building and new businesses are likely to be a drag on medium-term profitability vectors.
Outlook
We continue to watch out for signs of operating leverage and the impact of incremental rate transmission on margins. We tweak our FY23E/FY24E estimates by +6% each for better risk-adjusted margins; maintain REDUCE, with a TP of INR610 (3.1x Sep-24 ABVPS).
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