Apr'25 View on AU Small Finance Bank Ltd

AU Small Finance Bank Limited is engaged in providing a range of banking and financial services including retail banking, wholesale banking, treasury operations and other services. Based on Q3 numbers, what to expect from Q4 numbers • AUBANK reported a qoq decline in profitability (RoA of 1.5% and RoE of 13%) in 3QFY25. • Earnings are not comparable yoy due to the merger: PAT grew ~40% yoy • Gross and net NPL ratios were up ~35 bps and ~15 bps qoq, respectively. • The asset quality deteriorated further across secured and unsecured. • We maintain ADD with an FV of Rs650 (Rs675 earlier). Q3FY25 Earnings Update: Positives: • NII growth was healthy at 53% yoy and 2% qoq (against 5% qoq loan growth). • Non-interest income grew ~38% yoy. • Cost-income ratio improved sharply by ~230 bps qoq to ~54%. Negatives: • Overall slippages were higher at ~4.0% (up from 2.5% yoy and 3.3% qoq), led by continued macro challenges. • Credit cost increased sharply by ~45 bps qoq to 2.1% of advances • We believe that the situation is likely to remain challenging for a few more quarters in the unsecured retail segments.