AU Small Finance Bank 's stock took a significant hit on Tuesday, falling 7.51% to Rs 735.20, marking its lowest level since June 6. This decline comes despite the bank reporting a 15.6% increase in net profit for the first quarter.

Q1 Financial Performance

The bank's net profit for Q1 rose to Rs 581.00 crore, up from Rs 502.60 crore in the same quarter last year. This represents a year-on-year growth of 15.58%. Key financial highlights for the quarter include:

• Net Interest Income (NII) grew by 6% to Rs 2,045.00 crore
• Operating profit jumped 38% to Rs 1,312.00 crore
• Total revenue increased by 21.29% to Rs 5,189.00 crore

Asset Quality Concerns

Despite the profit growth, the bank's asset quality showed signs of deterioration:

• Fresh slippages reached 3.8% of loans
• Gross Non-Performing Assets (NPA) increased to 2.47% from 2.28% quarter-on-quarter
• Net NPA rose to 0.88% from 0.74%
• Provisions surged 88.6% year-on-year to Rs 533.00 crore

The management attributed the stress to credit cards, microfinance, and commercial banking portfolios. They expect delays in the microfinance book recovery until the fourth quarter and anticipate that credit card stress will remain elevated in the second quarter.

Market Reaction and Analyst Outlook

The stock's decline marks the fourth consecutive session of losses, reflecting investor concerns over asset quality issues. Trading volume reached 3.4 times the 30-day average, indicating heightened market activity.

Among 34 analysts covering the stock:

• 19 maintain 'buy' ratings
• 7 recommend 'hold'
• 8 suggest 'sell'

The consensus price target implies a 6.1% upside potential from current levels.

Conclusion

While AU Small Finance Bank has shown robust profit growth and revenue expansion, the deteriorating asset quality has overshadowed these positive results. Investors and analysts will be closely monitoring the bank's performance in the coming quarters, particularly focusing on its ability to manage credit quality in its stressed portfolios.

AU Small Finance Bank experienced a significant drop in its share price following the release of its mixed quarterly results. The bank's stock fell 7.3% to Rs 736.95, despite reporting a 16% increase in net profit.

Mixed Financial Performance

The bank reported a net profit of Rs 581.00 crore, representing a 16% year-on-year growth. This increase was primarily driven by treasury gains. However, the core lending performance of the bank showed signs of weakness.

Margin Pressure and Asset Quality Concerns

AU Small Finance Bank faced challenges in maintaining its net interest margin (NIM), which contracted by 38 basis points to 5.4%. This contraction was attributed to the transmission of rate cuts in the market.

Adding to the concerns, the bank's asset quality deteriorated during the quarter. The gross non-performing assets (GNPA) ratio rose to 2.47% from 1.78% year-on-year, indicating an increase in stressed assets. As a result, the bank had to significantly increase its provisions, which surged to Rs 533.00 crore from Rs 283.00 crore in the same period last year.

Growth in Operating Profit and Other Income

Despite the challenges, AU Small Finance Bank reported a strong 38% growth in pre-provision operating profit, which stood at Rs 1,312.00 crore. This growth was supported by a substantial 59% jump in other income, which reached Rs 811.00 crore.

Loan Portfolio and Deposit Growth

The bank's gross loan portfolio expanded by 18% to Rs 1.18 lakh crore. However, it's worth noting that unsecured segments within the loan portfolio declined by 23%, indicating a more cautious approach towards high-risk lending.

On a positive note, total deposits grew by 31% to Rs 1.28 lakh crore, showcasing the bank's ability to attract customer funds.

Market Reaction

The mixed results, particularly the concerns over asset quality and margin pressure, led to a negative market reaction. Investors seemed to focus on the potential risks rather than the profit growth, resulting in the 7.3% drop in share price.

Conclusion

While AU Small Finance Bank demonstrated growth in certain areas, the challenges in maintaining asset quality and net interest margin have overshadowed the positive aspects of its quarterly performance in the eyes of investors.