AU Small Finance Bank (AUBANK) reported subdued earnings, impacted by higher provisions (INR1.4b) toward SMA accounts. Overdue loans stood at INR23b (8.5% of loans) as of April’20 v/s INR36b as of 1st Mar’20. 29% of customers (25% of the loan book) availed moratorium, which would be the key monitorable in the near term. On the business front, loan growth moderated, while deposits stood healthy. Margins were stable on a sequential basis despite excess liquidity buildup, with management suggesting spreads would improve further. We cut our earnings estimate for FY21/22 by 18%/10% as we factor in high credit cost and moderation in business growth. Maintain Buy.
We estimate loan growth trends to remain soft at 15% in FY21 (20% AUM growth), while credit cost would increase to 1.7% in FY21E, as we build in higher slippages, driving an 18%/10% cut in our FY21/FY22 earnings. We thus revise our TP to INR675 (3.5x FY22E BV). Maintain Buy.