Q3FY23 Review: AU Bank: Stable margins, healthy fee traction

20 Jan 2023 , 12:49 PM

AU Bank reported core PPOP growth of 21% YoY / 11% QoQ in the quarter. The results are above estimates made by analysts at IIFL Capital Services. This was mainly because of lower opex, which along with utilization of contingent provisions led to a 12% beat on PAT. Strong growth in gross loans and disbursements, increasing share of retail deposits, stable margins, healthy fee traction and improvement in asset quality QoQ were key positives. Higher growth in operating expenses would be a concern, if growth moderates going forward.

Analysts at IIFL Capital Services have increased their earnings estimates by 4/2/2% for FY23/24/25 and expect AU Bank to deliver PAT CAGR of ~21% and ROA/ROE ~1.7/15.3% over FY23-25. Additional contingent provisions would provide a cushion for earnings going forward. 

Analysts of IIFL Capital Services are positive on growth prospects going forward owing to low penetration levels in targeted customer base and an increasing geographical presence. The bank continues to invest heavily in its franchise to capitalize on these opportunities and this would keep opex ratios elevated, thus creating a drag on near-term profitability. Capitalization is adequate post the capital raise in Q2.

Analysts at IIFL Capital Services have maintained Buy recommendation on the stock with a target price of Rs 740.