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Sturdy performance

Growth acceleration, resilient NIMs and NPL reduction were key highlights

Aptus delivered a 2-3% beat on NII and PAT while PPOP was in-line with our expectation. Disbursements were 10% higher than our estimate and consequently AUM growth accelerated to 32% yoy (27% yoy in FY22). Growth was driven by home loans (up 7% qoq) and quasi home loans (up 13% qoq), with calibrated growth approach continuing in small business loans (share falling from 23% to 20% in past 4Qs). States of AP and TL remain growth propellers and their combined share in AUM increased to 46% from 40% over past 4Qs.

Resilient Spread/NIM performance was enabled by stable funding cost on the back of recent credit rating upgrade and even stable portfolio yield despite significant mix shift away from higher-yielding small business loans. Opex/Asset ratio jumped significantly from 2.4% to 2.8% with substantial increase in employee cost on the back of full impact of annual increments and higher disbursements related payouts.

30+ dpd portfolio was almost stable in % terms but increased 8% qoq in abs. terms. While the GNPL pool declined 10% qoq (GNPL % came down from 1.75% to 1.4%) reflecting strong recoveries (negligible write-off) and contained slippages, the Stage-2 assets increased by 14% qoq (increased from 4.7% to 5%) on account of fwd. flows. Credit cost of Rs90mn was underpinned by the increase in Stage-2 assets and raising of coverage on it from 3.5% to 6.4%. Restructured assets were at 0.8% of AUM, and collections are as good as other std. loans.

Management commentary remains sanguine

Key comments included 1) sustenance of demand in October and November, 2) incremental reduction in 30+ dpd towards the pre-Covid level over the next 2-3 quarters, 3) NIM stability continuing with variable bank borrowings linked to 1-yr MCLR and credit spread optimization from the rating upgrade, 4) focus on increasing productivity of existing/lower-vintage branches and 5) sustainable RoA delivery of 7% even with increased leverage.

Valuation palatable in context of long-term growth/RoE trajectory

Our FY23/FY24 earnings estimates underwent mild upgrades on lifting of growth/margin assumptions. We estimate AUM/earnings CAGR of 29%/25% over FY22-24 with an avg RoA delivery of 7.1% and RoE delivery of 15.4%. Structurally high growth prospects and return metric (20-25% RoE on gearing of 2.5-3x) make valuation of 4x FY24 P/ABV palatable. We retain BUY with 12m PT of Rs390. Slippages into Stage-3 (given the increase in Stage-2) and trajectory of cost ratios would be closely watched in the coming quarters.

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