AU Small Finance Bank Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from AU Small Finance Bank Ltd (AUFI) Q4 FY22 Earnings Concall

 Management Update:

• AUFI generated its higher ever operating profit in 4Q22. The company said 40% of its new customers acquired in 4Q were through the recently launched digital channels and products.

Q&A Highlights:

• Aditya Jain of Citi asked about the steady reduction in cost of funds on the liability side and share of floating rate loans on the book. Sanjay Agarwal MD said that it was due to inflation and interest rate cycle being tough. The share of floating was 25% and 75% was fixed, but tenure is low.

• Prateek Gupta with Guardian Capital enquired how the interest rate impact on the NIM in the upcoming quarters. Sanjay Agarwal MD replied the bank is starting its cost of money around 5.6 and last year it was 5.9 on an overall basis. The bank added that it can protect its NIMs moving forward in the range bound interest rate cycle.

• Akshay Jain from JM Financial asked about the CA growth, and the reason for its sharp growth on a QoQ basis. Rishi Tyagi Chief of Collections said the March quarter is always high for the CA book. About 27,000 of AUFI’s customers contributed to the growth of balances in the CA book in March and good amount of money came from the contractor segment.

• Akshay Jain from JM Financial also asked about the percentage of CA customers having asset relationship with the bank. Rishi Tyagi Chief of Collections replied that currently it is about 15% of the customers that have an asset relationship. However, the bank is ramping this up significantly.

• Nidhesh Jain of Investec asked about growth in FY23, FY24. Sanjay Agarwal MD said next two years is difficult to comment as of now. But this year the challenge remains with the interest rate cycles and the inflation. AUFI added that it expects deposits to growth in the range of 30-35% and asset in the range of 25-30%. FY23 growth can be as pre-COVID levels.

• Sonal Gandhi from Nirmal Bang asked about the credit cost expectation in FY23 and FY24 since the GNPA and the incremental book is very low. Sanjay Agarwal MD replied it’s difficult to comment but pre-COVID the GNPA was around 1.5, 1.3 and net NPA was around 0.5. Now the whole provisioning policy has been changed.

• Pranav Mehta of Valuequest asked about the reason for the 500 bps increase in the cost to income ratio. Sanjay Agarwal MD said that there has been challenges in opex due to inflation. Also, it’s more of a supply issue and it will gradually improve. For AUFI the comfortable level is around 50-52% on an ongoing basis, plus 5-6% on the investment side.

• Bhavik Dave with Nippon India asked how cost can be controlled if growth slows down a little. Sanjay Agarwal MD replied that the company can manage its cost, but this time it is because of inflation which has created something extraordinary on the balance sheet. In the next 1-2 years it will settle down and will have to wait for that.

• Bhavik Dave with Nippon India asked about specific product and geographies AUFI can scale up in future. Sanjay Agarwal MD said Wheels is the most exciting product and is expected to grow north of 25% for next 5 years. Housing is also bullish. In terms of geography UP is expected to scale up long term.