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Business momentum modest; incremental cost of funds rises 40bp QoQ

AUBANK has released its business update for 1QFY23. Here are the key highlights:

* AUBANK reported a modest sequential growth of 4.9% (up 37% YoY) in total AUM to ~INR502b. On a gross advances basis, it witnessed a growth of 5.5% QoQ (up 42.3% YoY). In 1QFY23, disbursements remained healthy, but moderated by 18% QoQ to INR84.5b (up 345% YoY due to a low base). The bank is witnessing strong traction in its Credit Cards business, with outstanding cards of ~0.24m as of Jun’22.

* On the liability front, total deposits grew ~48% YoY and 3.9% QoQ to INR546b. This was led by a strong 9% QoQ (+125% YoY) growth in CASA deposits, while term deposits grew ~21% YoY and 1% QoQ. CASA ratio improved to 39% (v/s 37% in 4QFY22). The average cost of funds remains stable at 5.7%. However, the incremental cost of funds rose 40bp QoQ to 5.7%, which can keep margin under pressure.

* On the asset quality front, collection efficiency remained strong (103-106%) over 1QFY23, which is likely to aid a sustained improvement in asset quality.

Valuation and view:

AUBANK continues to post a strong YoY growth in advances. However, the momentum softened on a QoQ basis. Growth in advances is led by strong disbursements on the back of continuous improvement in the business environment. Deposit growth remains strong, led by healthy CASA growth. On the asset quality front, collection efficiency remains strong (in excess of 100%), which is likely to result in an improvement in asset quality ratios. We maintain our Buy rating with a TP of INR813 per share (4.5x FY24E ABV).

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