Motilal Oswal 's research report on AU Small Finance Bank
AUBANK's Annual Report emphasizes the bank's core focus on building a strong retail franchise, with retail AUM comprising ~84% of the loan book (98% secured loans). On the liability side, CASA plus retail TD comprises ~43% of deposits, with the concentration of the top 20 deposits declining to 23.4% v/s 25% in FY20. For FY20, NII/PPoP grew by 42%/66% while PAT grew by 77% YoY to INR6.7b aided by Aavas stake sale with bank reporting strong RoA/RoE of 1.8%/18%. Capital level remains strong with a Tier 1 ratio of 18.4% (CAR at 22%). Focused lending toward income generation activities and a lower average ticket size of ~INR0.5m has helped the bank maintain control over credit cost despite facing various headwinds. Retail GNPA improved to 1.7% v/s 2.2% in FY19, and overall GNPA increased to 1.7% v/s 2.0% in FY19. AUBANK follows an accelerated provisioning policy, which has enabled the bank to substantially increase its PCR by ~1,520bp to 53%. The bank continues to invest in digital capabilities and offers multiple new-age products that are gaining strong traction. Continuous scale-up in the digital channel would enable the bank to achieve higher productivity, thereby improving cost ratios. AUBANK reported a stable operating performance in FY20, with deposit growth holding strong despite an increasing focus on retail deposits. Collection efficiency remains the key to assessing the overall impact of moratorium, which would keep asset quality under watch.
Outlook
We estimate growth to remain modest, while credit cost would likely remain elevated (estimate of 1.7% for FY21E, in addition to 52bp of COVID-19 provisions made in 4QFY20). Maintain Buy, with unchanged TP of INR675.
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