AU Small Finance Bank Limited (AUBANK)

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Summary from August 2024

Conference Call Overview • Date: August 1, 2024 • Focus: Financial results for the quarter ending June 30, 2024 • Key Participants: Sanjay Agarwal (MD & CEO), Shoorveer Shekhawat (Head of Liabilities), Manmohan Parnami (Company Secretary) • Format: Opening remarks followed by Q&A • Transcript available on the bank's website

Key AnnouncementsUniversal Bank License Application • Significant milestone after seven years of effort • Gratitude expressed to various stakeholders

Macroeconomic Environment • Positive outlook post-general elections • Supportive budget for MSME credit and affordable housing

Financial PerformanceDeposit Strategy • Overall deposit book: INR 97,290 crores • CASA deposits increased by 1.8% • Cost of funds reduced from 7.10% to 7.03% • Target to grow deposits by 25% this year

Asset Management • Yield on assets: 15.8% • Strong asset quality with projected normalized credit costs

Future Focus Areas • Branch banking, credit card business, and microfinance • Microfinance to remain a small portion of the portfolio

Concerns and ResponsesDeposit Growth • Addressed concerns about sequential decline in deposits • Assurance of no risks to asset growth despite cost challenges

Microfinance and Provisioning • Target to keep microfinance at 10% of overall portfolio • 93% coverage of gross non-performing assets (GNPA)

Credit and Funding StrategiesCredit-Deposit Ratio • Real CD ratio of 84%, excluding refinanced assets • Focus on secured lending to minimize risks

Funding Costs and Liquidity • Slight decline in cost of deposits • Liquidity coverage ratio (LCR) around 115%-120%

Operational InsightsPost-License Strategy • Enhanced focus on urban areas and new segments • Stable operational expenses projected at 61%-62% cost-to-income ratio

Credit Card Performance • Issued 75,000 cards this quarter, focusing on high-quality segments • Aim to issue around 500,000 cards for the year

Management Confidence • Confidence in maintaining performance metrics despite cyclical challenges • Guidance on credit costs and return on assets (ROA) remains optimistic

Conclusion • Management expressed confidence in the bank's trajectory and growth potential, with ongoing adjustments to credit strategies and a focus on maintaining asset quality.

Summary from May 2024

Conference Call Overview • Date: May 2, 2024 • Discussion on financial results for the quarter and fiscal year ending March 31, 2024 • Key participants: Founder and CEO Mr. Sanjay Agarwal and management team • Format: Opening remarks followed by Q&A session • Transcript available on the bank's website per SEBI regulations

Key Highlights from the CallPerformance and Future Plans • Expressed gratitude to stakeholders • Emphasized India's strong GDP growth and stable inflation • Discussed merger with Fincare Small Finance Bank to enhance market presence • Strategic priorities for the next three years include: • Increasing high-yield asset disbursements • Improving branch profitability • Reported Q4 performance: ROA of 1.6%, significant growth in deposits and loan portfolios

Financial Metrics • Deposits increased by 26% YoY, surpassing Rs. 87,000 crores • Gross Loan Portfolio (GLP) grew by 28% to approximately Rs. 82,000 crores • Targeting 25% annual growth in balance sheet over the next three years • 9% quarter-on-quarter growth in overall deposits; CASA increased by 10%

Challenges and Risk Management • Acknowledged elevated interest rates as a challenge • Emphasized addressing risks related to AML and cybercrime • Commitment to becoming a trusted financial institution

Q&A Session InsightsCredit Costs and Net Interest Margins (NIM) • Expected steady-state credit cost post-merger: 1.0% to 1.1% • Anticipated increase in cost of funds by 40-45 basis points, potential NIM contraction

Credit Card Strategy • Limiting new card issuances to 600,000 this year • Anticipated profitability not expected in the next two years • Current drag of approximately Rs. 268 crores from credit cards for FY '24

Yield Adjustments and Disbursement Strategy • Focus on higher ROA businesses, reducing affordable housing loan focus • 75% of disbursements expected from high-yield assets this year

Securitization and Fee Income • Securitization may decrease but remains necessary for capital adequacy • Stable fee income supported by new products like wealth management

Additional RemarksBranding and Visibility • Importance of branding to enhance visibility and deposit franchise • Ongoing rebranding of Fincare touchpoints to AU

Capital Projections • Post-merger Tier-1 capital projected at 20-21% • 50 basis points benefit in Tier-1 and Tier-2 capital noted

Conclusion • Management expressed confidence in defending ROA and improving profitability • Encouraged participants to reach out for further questions • Call concluded with thanks from the moderator on behalf of AU Small Finance Bank

Summary from February 2024

Conference Call Overview • Date: January 25, 2024 • Transcript submitted to National Stock Exchange of India and BSE Limited on February 1, 2024. • Key personnel included Managing Director and CEO Sanjay Agarwal. • Format: Opening remarks followed by Q&A session.

Key Highlights from the CallGratitude and Vision • Acknowledgment of stakeholder support as the bank approaches its 75th Republic Day. • Positive outlook for India driven by structural changes and MSME sector growth.

Financial Performance • Balance sheet exceeded INR 1 lakh crores. • 31% year-on-year growth in deposits. • Net interest margin maintained at 5.5%.

Asset Quality • Stable asset quality with a slight increase in gross NPA to 1.98%. • Focus on deposit-led model and governance.

Technological Advancements • Emphasis on cloud migration, data analytics, and AI development. • Digital product strategy expected to boost customer acquisition significantly.

Strategic InitiativesGrowth Focus • Enhancing customer engagement through cross-selling financial products. • Cautious planning due to uncertainties in interest rates and inflation.

Credit Card and Microfinance Strategy • Credit costs for credit cards around 6.5%, stabilizing and trending downwards. • MFI book to remain below 10% of overall loans.

Securitization and Income Growth • Significant increase in income from the securitized book. • Continued growth expected in the securitization portfolio.

Management InsightsChallenges and Strategies • Difficulty in improving interest rates while maintaining asset quality. • Focus on balancing costs and yields amid a tough market environment.

Long-term Goals • Expectation of breakeven in the credit card business by FY25. • Confidence in long-term growth and profitability trajectory.

Operational Efficiency • Investments in customer engagement and digital initiatives. • Anticipation of improvements in cost leverage over the next three years.

Conclusion • Management expressed confidence in overcoming challenges and delivering sustainable value with stakeholder support. • Encouragement for further inquiries and gratitude for participation in the call.

Summary from November 2023

Submission Details • Date of submission: November 3, 2023 • Conference call date: October 30, 2023 • Discussed financial results for Q2 FY24 and half-year ending September 30, 2023 • Key executives participated, including the Managing Director and CEO • Transcript available on the bank's website

Key AnnouncementsMerger Proposal: Announcement of a transformative all-stock merger with Fincare Small Finance Bank • Strategic Focus: Emphasis on enhancing operational efficiency and preparing for future growth

Financial Performance HighlightsCustomer Growth: Onboarded 360,000 new customers • Deposits: Reached INR 75,000 crores with a 30% year-on-year growth • Net Interest Margin (NIM): Reported at 5.5% • Advances Growth: 2% for the quarter, 24% year-on-year • Asset Quality: Stable with a gross NPA of 1.91% • Cost-to-Income Ratio: Improved to 61% • Net Profit: Increased by 17% year-on-year to INR 402 crores

Strategic InitiativesBusiness Reorganization: Into five groups to enhance efficiency • Digital Banking Growth: Significant growth in credit cards and personal loans • New Campaign: Featuring Kiara Advani to promote financial inclusivity

Merger InsightsDistribution Network: Merger will double touchpoints to approximately 2,300 • Management Integration: Fincare's Rajiv to become Deputy CEO post-merger • Focus on Microfinance: Aims to diversify product offerings, especially in lending to small farmers

Challenges and OpportunitiesCompetitive Pressures: Acknowledgment of challenges in deposit acquisition and market competition • Fee Income Growth: Significant rise attributed to insurance and credit card businesses • Securitization Strategy: Aimed at diversifying funding and improving PSL compliance

Future OutlookBalance Sheet Growth: On track to exceed INR 1.25 lakh crores by March • Universal Banking License: Plans to build comprehensive capabilities before pursuing this goal • Credit Quality Assurance: Commitment to maintaining asset quality despite new business integration

Conclusion • Management expressed confidence in the merger's strategic benefits and the financial health of the combined entity, addressing potential integration challenges and emphasizing a strong future for the merged bank.

Summary from July 2023

Compliance and Call Overview • AU Small Finance Bank submitted a transcript of its conference call on July 27, 2023, in compliance with SEBI regulations. • The call, held on July 22, featured key management, including MD and CEO Sanjay Agarwal. • The transcript is publicly accessible on the bank's website.

Financial Performance HighlightsDeposits Growth: 27% year-on-year increase, focusing on retail and granular deposits. • Net Profit: Rose by 44% year-on-year. • Asset Quality: Stable with a gross NPA of 1.76%. • Digital Transformation: Commitment to enhancing customer-centric services and financial inclusion.

Strategic Focus and Future Outlook • Emphasis on platform development, governance, and rural banking initiatives. • Plans for significant growth as the bank approaches its 10-year anniversary in 2027. • Purchase of PSLC worth INR 860 crores to support small and marginal farmers.

Business Segment PerformanceSBL Business: Disbursals of INR 1,407 crores, 10% year-on-year growth. • Commercial Banking: 57% year-on-year growth, disbursed INR 2,419 crores. • Digital Banking: 50,000 new savings accounts acquired through AU 0101 platform.

Management Insights and Q&A HighlightsDeposit Mobilization: Focus on diversifying offerings beyond interest rates. • NPA Concerns: Seasonal uptick in NPA; overall increase minimal. • Credit Costs: Stable guidance for the year, with no anticipated surprises. • Return on Assets (ROA): Aiming to maintain profitability despite margin challenges.

Closing Remarks • The call concluded with thanks from the moderator and Sanjay Agarwal. • A disclaimer emphasized the informational nature of the presentation and the associated risks with forward-looking statements.

Summary from May 2023

Conference Call Overview • Date: April 25, 2023 • Transcript submitted to National Stock Exchange of India and BSE Limited on May 2, 2023. • Key participants included Managing Director and CEO Sanjay Agarwal. • Format: Opening remarks followed by a Q&A session.

Bank Performance HighlightsGrowth Metrics: • Deposits increased by 32%. • Assets grew by 26%. • ROA: 1.8%, ROE: 15.4%. • Strategic Focus: • Commitment to innovation and technology upgrades. • Recent acquisition of AD-1 license to enhance service capabilities. • Emphasis on low-cost deposits and digital transformation.

Recognition and Future Outlook • Recognized as one of the top 25 in the BFSI segment. • Awarded "Best Small Finance Bank of the Country" by Financial Express and Business Today. • Strategy to build a sustainable, well-governed pan-India bank.

Operational Highlights (Q4 FY23)Performance Metrics: • Gross NPA: 1.66%, Net NPA: 0.42%. • Customer base grew by 40% to over 38 lakhs. • 90% increase in app registrations. • Deposits and Branch Expansion: • Deposits rose to Rs. 69,365 crores. • Opened 58 new branches focusing on urban markets.

Portfolio Breakdown • Total portfolio: Rs. 22,833 crores with 8.43 lakh live loans. • Vehicle financing segment: 1.34% increase in disbursements. • Home loan portfolio grew by 63% year-on-year.

Q&A Session Insights • Concerns raised about ROA and NIM pressures. • Management confident in maintaining ROA through diversified income sources. • Discussion on asset class breakdown and credit card profitability timeline.

Future Projections • Expected ROA above 2% in the next 3-5 years. • Focus on retail and high-yield assets, effective cost management, and technological innovations. • Anticipated loan growth rate of 28%-30% while maintaining asset quality.

Conclusion • The bank is committed to enhancing customer service and expanding market presence while focusing on sustainable growth and operational efficiency.

Summary from January 2023

Conference Call Overview • Date: January 25, 2023 • Focus: Financial results for the quarter and nine months ending December 31, 2022 • Key Participants: MD and CEO Sanjay Agarwal and senior management • Format: Initial remarks followed by a Q&A session

Financial Performance HighlightsConsistent Growth: 23rd quarter of growth despite global challenges. • Record Net Profit: INR 393 crores. • Network Expansion: 42 new touch points, totaling 1,015 locations. • Deposit Growth: 38% year-on-year increase, reaching INR 61,101 crores. • Asset Quality: Gross NPA at 1.8%, net NPA at 0.51%.

Strategic Focus3S Principles: Standardization, Scalability, and Sustainability. • Digital Initiatives: Enhancing technology and digital services. • Customer Engagement: Focus on exceptional customer experience and competitive deposit rates.

Operational HighlightsLoan Disbursements: Record vehicle loans (INR 3,864 crores) and strong small business loans (INR 1,678 crores). • Agri Banking Growth: 14% portfolio growth, reaching INR 3,447 crores. • CASA Ratio: Maintained at 38%.

Q&A Session InsightsContingent Provisions: Utilization for COVID-related issues as conditions normalize. • Employee Base: Routine adjustments post-COVID hiring; no further reductions planned. • Cost of Funds: Stable compared to peers; expected around 5.95% for the upcoming quarter. • Growth Outlook: Optimistic despite macroeconomic challenges; focus on asset quality and sustainable growth.

Closing Remarks • Aseem Pant thanked participants and encouraged further inquiries through the Investor Relations team. • Wished everyone a prosperous 2023.