Reiterate ADD on AU Small Finance Bank - Normalising ahead of expectations - HDFC Securities

Mr. Krishnan ASV, Institutional Research, HDFC Securities

AUBANK used non-core proceeds (1.1% of average assets) booked during the quarter to shore up its coverage. With cumulative cover at 2% of loans, AUBANK appears to have adequately provided against pro forma and potential stress, largely stemming from its secured businesses. Collection efficiencies and customer activation rates have normalised across segments close to last year levels. With the dependence on corporate and inter-bank deposits reducing, AUBANK's deposit franchise is getting more granular. We reiterate ADD with a target price of INR 932 (4.1x FY23E ABVPS).

Portfolio stress increasingly appears under control: Pro forma GNPAs rose 170bps QoQ to 3.3%. We expect incremental slippages to moderate and GNPAs to inch up only marginally here on to 3.6% in FY21E. Our stance is premised on (1) a sustained and broad-based uptrend in collection efficiency (97% in 3QFY21 vs. 96/98% YoY/QoQ), (2) seasoning of the pro forma NPA pool, especially from the secured, vintage businesses and (3) a broad-based normalisation of customer activation.

Prudent provisioning: AUBANK smartly utilised gains from its stake sale in AAVAS to further insulate the balance sheet. Non-tax provisions rose ~7/4x to ~INR 2.8bn (3.6% annualised), taking the cumulative stock of provisions to ~2%. We expect provisions to moderate here on and we build LLPs of 1.8% in FY21E and of 1.2% over FY22-23E.

Full steam ahead on deposits: AUBANK's build-out of its deposit franchise continues to surprise positively. Deposits grew 25% YoY, double the pace of loan growth, led by 72% growth in CASA and improving granularity as reflected in reducing dependence on corporate and inter-bank deposits.

Disbursals accelerate: Disbursal run rate picked up, registering a 34%/91% growth to INR 65.2bn. Consequently, sequential AUM growth accelerated to 8.6%, with faster growth in retail segments, the share of which has risen to~91%. We model an AUM CAGR of 15.9% over FY21-23E.

Shares of AU Small Finance Bank Ltd was last trading in BSE at Rs.978 as compared to the previous close of Rs. 964.2. The total number of shares traded during the day was 37931 in over 2524 trades.

The stock hit an intraday high of Rs. 994.45 and intraday low of 965.3. The net turnover during the day was Rs. 37126093.

Source : Equity Bulls

Keywords