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Business momentum remains robust; asset quality deteriorates sequentially

* AUBANK reported a 4QFY21 PAT of INR1.69b (up 38% YoY; MOSLe: INR2.64b), impacted by higher opex and elevated provisions. NII grew 24% YoY to INR23.6b. PPOP/PAT grew 80%/74% to INR21.6b/INR11.7b, aided by gains of INR5.7b from stake sale in AAVAS in FY21.

* NII grew 18% YoY (+4% QoQ) to INR6.6b (5% below our estimate) affected by higher interest reversal of INR660m. Margin contracted 30bp QoQ to 5.3%. Other income grew ~51% YoY to INR2.77b, aided by PSLC fee income of INR1.04b in 4QFY21.

* Operating expenses rose sharply (~32% each QoQ/YoY) to ~INR5.6b due to one-off increase in ESOP expenses of INR590m. The core C/I ratio increased to 59.4% v/s 54.4% in 3QFY21. PPOP grew 18% YoY to INR3.74b, while core PPOP growth stood ~30% YoY.

* Total AUM grew 22% YoY (+14% QoQ) to INR377b, with retail AUM forming 91% of total AUM. Net advances grew ~28% YoY (+14% QoQ). Disbursements picked up well and grew 48% YoY to INR74.2b in 4QFY21, driven by growth across most segments.

* Total deposits grew strongly (~38% YoY/~21% QoQ) to INR360b. Retail deposits (CASA + Retail TD) mix increased sharply to 55% of deposits (v/s 43% in 4QFY20). CASA ratio (excluding CDs) increased to 23% v/s 22% in 3QFY21.

* On the asset quality front, GNPA/NNPA ratio increased to 4.3%/2.2% v/s pro forma GNPA/NNPA of 3.7%/1.3% as of Dec’20. Of the total GNPA, ~1.5% pertains to customers who are less than 90dpd and paying, but were once NPA (‘ONAN’) and have been tagged as NPA now. The management expects majority of this pool to regularize as collection efficiency stood at 118% in Mar’21, with ~88% having paid their EMIs in Mar’21. PCR moderated to ~50%. AUBANK carried additional contingent provisions of INR700m.

* Collection efficiency and customer activation rates have surpassed pre-COVID levels across most segments, with ~81% of loans at zero dpd - similar to FY20 levels. The total restructuring book stood at INR6.41b (~1.8% of total loans), on which the bank has made provisions of INR1.15b.  Other highlights: 1) Capital adequacy stood strong at 23.4% (Tier I of 21.5%), and 2) incremental spread at 7.9%, with CoF declining to 6.5% (-20bp QoQ).

* Valuation and view: AUBANK’s reported earnings were impacted by one-offs in the form of high interest reversals and increase in opex, led by ESOP-related expenses. While asset quality deteriorated sequentially, collection efficiency and customer activation rate remains above pre-COVID levels, with ~81% of loans at zero dpd - similar to FY20. On the business front, retail deposit mix continues to improve, while AUM growth remains strong. We will review our estimates and TP post the earning call scheduled on 30th Apr’21.

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