AU Small Finance Bank's June-quarter performance strengthened analysts' confidence in the lender, with all three major brokerages highlighting stronger-than-expected earnings, healthy balance sheet growth and contained credit costs.
While a marginal sequential uptick in bad loans remained a watchpoint, brokerages largely viewed the quarter as another indication that the bank's growth trajectory remains intact.
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Brokerages Decode
Morgan Stanley
- Maintained Overweight with a target price of Rs 1,205.
- Said net interest income, fee income, core pre-provision operating profit (PPOP) and credit costs all beat estimates, resulting in an overall earnings beat.
- Said the stock is in a good compounding phase.
- Views AU Small Finance Bank as one of the few Indian private banks capable of delivering a mid-to-high teens return on equity profile.
- Said the stock remains attractive for both long-term and short-term investors.
JPMorgan
- Maintained Overweight with a target price of Rs 1,230.
- Said strong operating performance and lower provisions drove the June-quarter profit beat.
- Noted that balance sheet growth continues to accelerate.
- Said asset quality trends remain healthy.
Citi
- Maintained Buy with a target price of Rs 1,225.
- Said the bank demonstrated resilience in what is typically a seasonally weak quarter.
- Noted that the sequential decline in net interest margins was seasonal and better than anticipated.
- Said credit costs remained contained during the quarter.
- Highlighted broad-based AUM growth, led by the secured loan book.
AU SFB's Q1 Performance
AU Small Finance Bank reported a 37% year-on-year rise in net profit to Rs 796 crore, while net interest income increased 32% to Rs 2,696 crore.
Operating profit rose 9.4% to Rs 1,435 crore, while provisions declined to Rs 371 crore from Rs 533 crore a year earlier. However, provisions were higher than Rs 269 crore reported in the March quarter.
Asset quality weakened marginally on a sequential basis, with gross non-performing assets rising to 2.10% from 2.03%, while net NPA increased to 0.76% from 0.74%.
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