In the third quarter of FY24, AU Small Finance Bank Ltd. reported a profit after tax of Rs 3.75 billion, representing a 4% year-on-year decrease and a 10% discrepancy, mainly due to higher provisions, which increased approximately fourfold year-on-year, exceeding estimates by 44%. While net interest income grew by 15% year-on-year to reach Rs 13.25 billion, in line with expectations, net interest margins contracted by 6 basis points quarter-on-quarter, settling at 5.5%.
The pre-provision operating profit exhibited an 18% year-on-year increase to Rs 6.6 billion, despite a 25% year-on-year rise in operating expenses, which was 5% higher than estimated. Consequently, the cost-income ratio increased to 63% from 61.3% in the previous quarter.
The bank experienced a 20% year-on-year growth in advances, primarily driven by expansion in the wholesale book, even though the card business presented a negative surprise with increased delinquencies and provisioning expenses. Deposits also showed robust growth, increasing by 31% year-on-year and 5.8% quarter-on-quarter, driven by term deposits.
However, the gross and net non-performing assets of AU Small Finance Bank rose by 7.6% and 18.6% quarter-on-quarter, resulting in a deterioration of headline GNPA/NNPA ratios by 7 and 8 basis points, settling at 1.98% and 0.68%, respectively. The credit cost also surged to 0.62%, although excluding credit cards, the net credit cost normalized at 0.44%.
Analysts at Motilal Oswal have subsequently downgraded the bank’s estimated earnings per share for FY24 and FY25 by 6-7%, projecting a return on asset and return on equity of 1.7% and 15.7% for FY25. Nevertheless, they have maintained their ‘Buy’ rating and set a target price of Rs 800, equivalent to 3.4 times the September-25E book value.
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