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AU Small Finance Bank Ltd. reported slightly higher earnings (up 4%) as compared to our estimate, led by lower provisions. However, operating profit fell 9% YoY due to a weak treasury performance.
While advances growth was strong at 43% YoY, lower margin dragged net interest income growth to 35%. In Q1 FY23, margin contracted by 40 bps QoQ to 5.9%.
Gross non-performing assets increased by 5% QoQ. However, the GNPA ratio improved marginally. Net non-performing asset ratio grew 6 bps QoQ to 0.56%. Commission coverage ratio fell ~340 bps to 71.7%.
We cut our FY23/FY24 profit after tax estimate by ~3%/11% as we build in a lower margin of 5.9% (versus 6% earlier) and higher Opex due to sustained investments in building the franchise.
We expect AU Small Finance Bank to deliver 26% earnings compound annual growth rate over FY22-24 and return on asset/return on equity at 1.8%/18.3% in FY24.
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