AU Small Finance Bank Q4 Results Review - Lower Credit Cost, Early Signs Of Yield Improvement: Centrum Broking

Centrum Broking Report

AU Small Finance Bank Ltd. reported above estimate numbers primarily to improvement in asset quality. Net interest income for the quarter came in line at Rs 13.4 billion (our estimate: – Rs 13.7 billion). Further, non-interest income witnessed ~24% QoQ jump, thanks to pick up in business momentum.

However, higher opex led to marginally lower pre-provision operating profit at Rs 6.6 billion (our estimate – 6.9 billion). Resultantly, CTI for the quarter was sequentially higher at 64.9% versus 63.0% in Q3 FY24. However, credit cost for the quarter was lower at Rs 1,325 million versus Rs 1,589 million in Q3 FY24 which was better than our expectations.

Gross non-performing asset came in at 1.67% which was lower by 31 bps QoQ, net non-performing asset at 0.55% also lower by 9 bps on sequential basis thanks to collection momentum.

Therefore, inspite the bank booked amalgamation expenses as exceptional item worth Rs 768 million the profit after tax was broadly in line our estimates of Rs 3.7 billion. CRAR came in at 20.06% versus 20.82% as of Q3 FY24.

We maintain our Add recommendation for the stock. We roll forward to FY26 from H1 FY26 and AU Small Finance Bank at 3.5 times ABVE for FY26E, resulting in a target price of Rs 884.

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