AU Small Finance Bank hits 9-mth low, tanks 12% on disappointing Q3 results

Shares of AU Small Finance Bank (AU SFB) tanked 12 per cent to Rs 625, hitting a nine-month low on the BSE in Monday's intraday trade, after the lender reported 4 per cent year-on-year (Y-o-Y) decline in net profit at Rs 375 crore in the December quarter (Q3FY24) due to a sharp rise in provisions and contingencies. 

The lender had posted a net profit of Rs 393 crore in Q3FY23.

The stock was trading at its lowest level since April 2023. With today's decline, it has corrected 23 per cent from its 52-week high level of Rs 813 touched on January 8. Meanwhile, it had hit a 52-week low of Rs 548.15 on March 24, 2023.

At 09:58 AM, AU SFB was quoting 10 per cent lower at Rs 639.30 as compared to 0.96 per cent rise in the S&P BSE Sensex. Average trading volumes on the counter jumped nearly five-times today with a combined 6.4 million equity shares having changed hands on the NSE and BSE till the time of writing of this report.

In Q3FY24, the bank's net interest income (NII) expanded by 15 per cent Y-o-Y to Rs 1,325 crore. However, its net interest margins (NIMs) declined to 5.5 per cent in Q3FY24 from 6.2 per cent in Q3FY23.

The bank said the operating environment during Q3FY24 continued to witness higher interest rates with tight liquidity and persistent competition for deposits. NIM is expected to be at the lower end of the guided range of 5.5-5.7 per cent, the bank said in a statement.

The bank's gross non-performing assets (GNPAs) rose to 1.98 per cent in Q3FY24 from 1.81 per cent in Q3FY23 and 1.91 in Q2FY24. Net NPA was also up at 0.68 per cent from 0.5 per cent a year ago and 0.6 per cent in Q2FY24.

"AU SFB reported a mixed quarter as higher provisions dragged down net earnings even as fee/deposit growth stood healthy. Asset quality deteriorated in Q3, while margins continued to compress and stood at the lower end of the guided range," according to Motilal Oswal Financial Services (MOFSL).

On the business front, the brokerage said disbursement growth was healthy; however, high securitisation affected the growth rate of on-balance sheet advances. 

"Card business threw a negative surprise as delinquencies spiked, leading to an increase in credit costs. The provision coverage improved, while the bank carries tiny contingent reserves of around Rs 5 crore and floating provisions of Rs 41 crore," it added. MOFSL estimates operating performance to improve after the merger but remains watchful in the near-term.