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* AUBANK reported 23% YoY growth in net earnings (in line) in 4QFY23, aided by lower tax/provisions. PPoP was affected by higher opex. However, NII was in line with estimates, with margins moderating 10bp QoQ.

* Gross advances/deposits grew strongly by 26%/32% YoY, and CASA deposits grew 36% YoY, resulting in the CASA ratio improving to 38.4%.

* Absolute GNPAs/NNPAs declined 4%/14% QoQ. Thus, the headline GNPA/ NNPA ratios improved 15bp/9bp QoQ to 1.66%/0.42%. The PCR ratio improved to 75%.

* We largely maintain our estimates. We expect AUBANK to deliver a 28% earnings CAGR over FY23-25, with RoA/RoE of 1.9%/16.9% in FY25E. We reiterate our BUY rating on the stock.

Margins compress slightly; restructured book down to 1.2% of loans

* AUBANK reported 23% YoY growth in PAT to INR4.2b (in line) in 4QFY23, aided by lower provisions and a lower tax rate (~20%). In FY23, NII/PPoP/ PAT grew 37%/11%/26% to INR44.3b/INR20.2b/INR14.3b.

* NII grew 30% YoY to INR12.1b (in line), supported by 26% YoY growth in gross advances. Margins moderated 10bp QoQ to 6.1%. Core fee income grew 31% YoY (16% QoQ).

* Opex grew 27% YoY as the bank continues to invest in building the franchise. Thus, the C/I ratio increased 150bp QoQ to 63.1%. PPoP grew 18% YoY to INR5.7b (7% miss).

* Gross advances grew 26% YoY to INR592b (up 5% QoQ), led by healthy traction in the wholesale book, which grew 11% QoQ v/s 3% in retail loans.

* Total deposits grew 32% YoY to ~INR694b. CA/SA deposits grew 31%/11% QoQ, while TDs grew 14% QoQ. The CASA ratio thus increased to 38.4% v/s 38% in 3QFY23.

* GNPAs/NNPAs declined 4%/14% QoQ. Thus, GNPA/NNPA ratios improved 15bp/9bp QoQ to 1.7%/0.4%. The PCR ratio improved to ~75%.

* The outstanding restructured portfolio declined to INR7b, corresponding to 1.2% of advances (v/s 1.4% in 3QY23). The book

Highlights from the management commentary

* As the bank is investing in the business, the cost-to-income ratio is expected to remain elevated for the next 12-18 months.

* Margins are likely to remain under pressure over FY24 as the cost of funds has been increasing and the peak is not over yet. Margins may moderate by ~30-40bp over FY24.

* RoA is likely to remain at ~1.8-2% going ahead, with fee income to average assets expected to improve over the next few years.

* Loan growth is expected to be ~28% going ahead, with SBL book likely to grow ~20-22%.

* The credit cost is expected to remain below the normalized level in FY24

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