AU Small Finance Bank

Equity Research INDIA July 29, 2021 BSE Sensex: 52444 AU Small Finance Bank ADD ICICI Securities Limited Maintained is the author and Banking franchise gaining strength; digital journey distributor of this report being fast-tracked Rs1,173 Annual report analysis Key takeaway from AU Small Finance Bank’s (AU) FY21 annual report is the and target price revision display of business resiliency during challenging times. This is reflected in 38% YoY growth in deposits with 86bps decline in cost of funds and 22% YoY growth Financials in assets with best-in-class asset quality. Further, the bank remained focused on achieving the fastest growth to Rs1trn book size with a client base of >10mn from currently ~2mn. Journey to become a pan-India retail bank remained on track with Target price: Rs1,250 AU entering five new states and addition of >5,000 new members to further strengthen and fortify its workforce. It made significant strides towards becoming Target price revision a tech-led bank (digital opening of >90% of accounts, paperless two-wheeler Rs1,250 from Rs1,140 loans, and launch of AU 0101 super app). Maintain ADD with a revised target price of Rs1,250 (earlier Rs1,140). Shareholding pattern  AU 0101- Digital banking app. Taking cognisance of ~750mn smartphone users in Dec Mar Jun India and ~1.2bn people with Aadhaar card, AU launched its digital banking app – ‘20 ‘20 ‘21 AU 0101. This app offers solutions around savings and fixed deposits, credit cards, Promoters 29.0 28.5 28.4 Institutional loans, investments, insurance, bill payments, and other lifestyle solutions such as investors 51.7 52.6 53.3 cab and flight bookings, recharge and tax payments. It also offer multiple channels MFs and UTI 10.4 10.8 11.6 FIs/Banks 0.0 0.0 0.0 of digital and contactless banking like video banking, WhatsApp banking, chatbot Insurance co. 1.2 5.4 4.4 banking, etc. Further, it rolled out multiple features like video banking, ticket FIIs 37.1 36.4 37.3 Others 19.3 18.9 18.3 bookings, bill payments, etc. to non-AU bank customers as well. The launch of the super app has driven significant uptick in digital adoption.  Redefining branch banking. While continuing its focus on building a granular Price chart deposit base, AU incrementally focuses on acquiring quality customers (rather than 1,350 increasing numbers) with greater emphasis on CASA acquisition. Liability focus has 1,200 shifted from a one-size-fits-all approach to a more segment-based approach. 1,050 Specific teams have been set up to look after NRI banking, enterprise salary, 900 government banking, current account and TASC relationships to complement other 750

(Rs) segments. Products like ‘AU Platinum Family Banking’ allows it to target premium 600 customers. 450  Affordable housing segment gaining momentum. Post the process stabilisation 300 over past two years, affordable housing gained momentum in FY21 with monthly disbursements reaching Rs1.5bn by Q4FY21-end. AU currently offers affordable Jul-18 Jul-19 Jul-20 Jul-21 Jan-19 Jan-20 Jan-21 housing loans only at 135 locations while its existing overall presence is at ~600 locations.  Focus on becoming a pan-India bank. In its effort to become a pan-India bank, AU, in FY21, added 37 branches across 15 states and two Union Territories with West Bengal, Uttar Pradesh, Telangana, Odisha and J&K being the newest additions to its rapidly expanding presence. It plans to be present in all the major capital cities by Mar’22 and believes its digital banking journey will be well complemented by the expanded physical footprint. Research Analysts: Market Cap Rs367bn/US$4.9bn Year to March FY20 FY21 FY22E FY23E

Renish Bhuva Reuters/Bloomberg AUFI.BO/AUBANK IN NII (Rs mn) 19,094 23,654 28,700 34,848 [email protected] Shares Outstanding (mn) 312.8 Net Profit (Rs mn) 6,753 11,707 8,958 11,434 +91 22 6637 7465 Kunal Shah 52-week Range (Rs) 1356/616 EPS (Rs) 22.1 37.5 28.7 36.6 [email protected] Free Float (%) 71.6 % Chg YoY 76.9 73.4 (23.5) 27.6 +91 22 6637 7572 FII (%) 37.3 P/E (x) 53.2 31.3 40.9 32.0 Chintan Shah Daily Volume (US$/'000) 22878 P/BV (x) 8.2 5.8 5.2 4.5 [email protected] +91 22 6637 7658 Absolute Return 3m (%) 2.2 BVPS (Rs) 143 201 227 262 Piyush Kherdikar Absolute Return 12m (%) 49.5 Net NPA (%) 0.8 2.2 1.4 1.2 [email protected] Sensex Return 3m (%) +91 22 6637 7465 6.1 RoA (%) 1.8 2.5 1.6 1.7 Sensex Return 12m (%) 37.8 RoE (%) 17.9 22.0 13.4 15.0

Please refer to important disclosures at the end of this report

AU Small Finance Bank, July 29, 2021 ICICI Securities

 Asset quality. AU entered FY21 with strong asset quality metrics. GNPA ratio wad down to 1.7% as at Mar’20 vs 2.0% in Mar’19 backed by contained slippages and strong recoveries in FY20. However, FY21 was by far the most challenging year not just for AU in its history, but probably for the overall environment in at least the past two decades (with nationwide lockdown impacting business activities significantly). As a result, GNPL ratio increased to 4.25% (90+ dpd at 2.7%) by Mar’21, within which GNPL in unorganised segment (~80% of loans) was higher at 4.7% and that in organised segment was much lower at 1.4%.

 Key risk – A) higher slippages from ~11% non-NPA moratorium pool and B) moderation in AUM growth.

Table 1: Though ~80% of customers are predominantly in the unorganised segment, AU’s Mar’21 asset quality metrics reflect resiliency of this segment. As on March'21 Overall loan Loans to mainly Loans to mainly (Unless otherwise spesified) book unorganised segment organised segment Gross advances (Rs bn) 354 283 66 % of overall book 100%* 80% 20% Constituted primarily of Business Banking, Agri Remarks Wheels, SBL, Home Banking, NBFCs, REG,

Loans Others Yields 13.9% 14.8% 10.0% Average ticket size of disbursements (Rs mn) 0.5 0.5 2.1 90+ dpd % - March'21 2.7% 2.9% 1.1% 90+ dpd % - March'20 1.6% 1.6% 0.7% GNPA % - March'21 4.3% 4.7% 1.4% GNPA % - March'21 1.7% 1.7% 0.7% Source: Company data, I-Sec research *SME book in rundown (Rs4.36bn) has been excluded from this analysis; including SME numbers, GNPA would be 2.6% and 1.5% respectively

Chart 1: Collection efficiencies in FY21 against mobility indicators illustrates the correlation between AU’s collections and resumption in activity levels

Source: Worldindata, Google mobility indicators (baseline days are the median value for the 5-week period from 3rd January to 6th February 2020)

AU Small Finance Bank, July 29, 2021 ICICI Securities

Chart 2: Asset quality in New-to-Credit (formal) has been better than in seasoned customer segment

3.5 90+ dpd as on 31st March 2021 (%) 3.0 3.2

2.5 2.6 2.5 2.0 2.1 1.9

(%) 1.5 1.6 1.5 1.0

0.5 0.7

0.0 FY20 FY21 FY20 FY21 Wheels 90+ dpd SBL 90+ dpd Overall NTC

Source: Company data, I-Sec research Chart 3: Incremental credit is performing much better; AU is displaying greater caution in customer and product profile selection As at March'21 Negligible ECLGS or 5.0 restructuring in loans originated in FY21 till 31st 4.5 4.5 March 2021. 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.1 Key highlights of 0.0 GNPL in total loans GNPL in loans originated in FY21 moratorium book:

# Loans were originated Source: Company data, I-Sec research before 31st Mar’20 and primarily towards segments Chart 4:De-coding moratorium book; of total ~11% of non-NPA moratorium like commercial passenger book, ~44% of loans were current as on March’21 vehicles, schools, and De -coding moratorium book discretionary businesses like 16% public/social events related readymade garment shops, 14% 14% and hospitality. 12%

# ~77% of incremental GNPA 10% 11% in FY21 was from 14% moratorium book. 8% 6% # Of ~11% non-NPA pool, ~44% of loans were current as 4% at 31st Mar’21. ATS of the non-NPA pool stood at 2% 3% Rs0.4mn as at 31st Mar’21 and was entirely secured, with 0% ~90% of loans in either SBL or Loans availing moratorium for NPA as on March'21 Non NPA as on March'21 4 months Wheels. Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Analytics-led lending – merchant solution with QR system. To boost analytics- based lending and current account onboarding, AU launched its merchant solutions with a QR ecosystem in FY21. It acquired >75,000 merchants within months of its launch, which indicates greater adoption of QRs (the bank attributes it to superior features of the offering).

Supporting customers under ECLGS schemes. AU disbursed Rs5.6bn to >12,500 accounts under the Emergency Credit Line Guarantee Scheme (ECLGS 1.0). It also provided support to stressed customers by restructuring loans worth Rs6.4bn (>7,700 accounts) during FY21.

Data analytics – for customer segmentation. Its focus on UYC (Understand Your Customers) principle instead of just KYC (Know your Customer) clubbed with data analytics has helped it improve customer experience, deepen engagement and generate better cross-sell and up-sell opportunities. Data analytics has allowed it to adopt a ‘sniper approach’ by dissecting its customer base into various funnels to take advantage of the often de-prioritised demographics (such as senior citizens, pensioners and housewives) by providing them with personalised offerings.

Building a robust digital ecosystem. By some estimates, the world has seen an equivalent of at least two years of digital acceleration in the first 2-3 months of onset of the pandemic. Taking cognisance of this, AU fast-tracked its digital journey and launched a series of products / initiatives to grow its distribution and acquire / service customers in a cost-efficient manner. Below are the key products / initiatives launched by AU in FY21:  Video banking: Taking advantage of RBI’s landmark move to allow video-KYC, by reimagining the entire banking process, AU launched its video banking division with 100 people to provide a seamless and secure banking experience (similar to experience in a branch) over a video call to customers at their convenience.  New internet and mobile banking: During Q3FY21, AU rolled out a new internet and mobile banking platform, which eventually transformed into a ‘super app’ loaded with >130 new functionalities that allow users to not only have the complete suite of banking services at their fingertips, but also access to lifestyle services like cab, flight and hotel booking. AU is constantly innovating and adding features to the super app.  Payments: AU went live across all the payment channels like UPI, UPI QR, 24x7 NEFT, IMPS, AEPS, FASTag, BBPS, bill payment, debit card, ASBA, among others. It has rolled out >75k UPI QRs in the preceding nine months since its launch.  Expanding digital onboarding universe. AU introduced savings account opening through WhatsApp, self-onboarding of CASA accounts, tab-based onboarding for all liability customers and digital lending for two-wheelers, select wheels, consumer durables. It is now testing similar journeys for other asset segments such as SBL, wheels, etc.  Credit cards: After testing the credit card system for ~6 months with its employees, AU launched the product for customers in Q1FY22. The entire product was developed, tested and operationalised in less than 12 months during the pandemic.

AU Small Finance Bank, July 29, 2021 ICICI Securities

Chart 5: AU is partnering leading e-commerce players to drive engagement and visibility

Source: Company data, I-Sec research

Chart 6: Bank continued strengthen its workforce

25,000

20,000 22,484 15,000 17,112 10,000 12,623 12,076 5,000 11,243 7,829 827 1,084 1,233 0 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 Employee Strength People Employed for New Joinees 5+ Years

Source: Company data, I-Sec research

Chart 7: AU’s region-wise touchpoints

Metropolitan 15% Rural 33%

Urban 21%

Semi Urban 31%

Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Chart 8: Market-wise touchpoints – incrementally, AU focuses on increasing its footprints in urban markets Deposits from urban markets stand at 74% of liabilities. Urban Market 22%

Assets in core markets stand at 66% of its asset book.

Core Market 78%

Source: Company data, I-Sec research

Chart 9: AUM CAGR was at 33% over FY18-FY21 and was supported well by 18% CAGR in disbursements

400

350 377

300 309 250 242 200 186

(Rs bn) (Rs 150 176 162 161 100 108 50

0 FY18 FY19 FY20 FY21 Disbursements AuM

Source: Company data, I-Sec research

Chart 10: IRR trend over 15 years

20 18 18 18 18 18 16 17 17 17 17 17 17 16 16 14 15 15 15 15 14 14 12 10 8 6 AUM IRR (%) IRR AUM 4 2 0

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Chart 11: Thrust on retail segment continued; it contributed >80% of AuM in FY21 AuM mix 100% 17% 22% 16% 15% 90% 80% 83% 84% 85% 70% 78% 60% 50% 40% 30% 20% 10% 0% FY18 FY19 FY20 FY21 Retail SMC

Source: Company data, I-Sec research

Chart 12: Used vehicles continued as a preferred segment in FY21 within the wheels portfolio

New Used/Re-Finance Trade Advance 2 2 3 2 2 1 2 1 1 1 100 90 28 27 27 27 28 31 34 35 37 37 80 70 60 71 71 70 71 70 68 64 64 62 62

(%) 50 40 30 20 10 0

Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q4FY21 Source: Company data, I-Sec research Chart 13: Robust digital platform ensured steady decline in cost of assets to 3.5% in FY21, one of the lowest amongst SFBs Cost to Assets 6.0

5.0 5.3

4.0 4.2 3.8 3.0 3.5

2.0

1.0

0.0 FY18 FY19 FY20 FY21

Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Chart 14: Deposit mobilisation is keeping pace with balance sheet growth… Deposits -ex CD 400 343 350

300 239 250

200 171 (Rs bn) (Rs 150

100 67 50 8 0 June'17 FY18 FY19 FY20 FY21

Source: Company data, I-Sec research

Chart 15: … with increasing share of retail TD

80% Term Deposit break-up

70% 70% 60% 61% 50% 56%

40% 44% 39% 30% 30% 20%

10%

0% Retail TD Bulk TD FY19 FY20 FY21

Source: Company data, I-Sec research

Chart 16: Asset quality deteriorated in FY21, but remains one of the lowest within SFB space

4.5% 4.0% 4.3% 3.5% 3.0% 2.5%

2.0% 2.2% 2.0% 2.0% 1.5% 1.7% 1.0% 1.3% 1.3% 0.5% 0.8% 0.0% FY18 FY19 FY20 FY21 GNPA (%) NNPA (%)

Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Table 2: Bank’s provisioning policy Overdue buckets Secured Unsecured 90-180 15% 25% 181-365 30% 30% 366-455 60% 60% 456-730 60% 100% >730 100% 100% Loss Asset 100% 100% Source: Company data, I-Sec research

Chart 17: Uptick in RoE in FY21 was mainly driven by Aavas stake sale

RoAA RoE 3.0% 23.4% 25.0%

2.5% 17.9% 20.0%

2.0% 14.0% 13.7% 15.0% 1.5% 10.0% 1.0%

5.0% 0.5% 2.0% 1.5% 1.8% 2.5% 0.0% 0.0% FY18 FY19 FY20 FY21

Source - *Includes profit from sale of shares of Aavas Financiers Limited

Chart 18: Adequately capitalised with higher loss absorption capacity Tier 1 ratio 25.0%

20.0% 21.5%

18.4% 18.4% 15.0% 16.0%

10.0%

5.0%

0.0% FY18 FY19 FY20 FY21

Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Table 3: Top and middle management team Name Designation Key Managerial Personnel Mr. Sanjay Agarwal MD & CEO Mr. Uttam Tibrewal Whole-time Director Mr. Deepak Jain COO Mr. Vimal Jain CFO Mr. Manmohan Parnami CS Leadership team Mr. Manoj Tibrewal Group Head – Distribution, Enterprise Salary and Merchant Acquiring Mr. Rishi Dhariwal Group Head - Branch Banking Mr. Shoorveer Singh Shekhawat Chief of Products and Communications - Liabilities Mr. Yogesh Jain Chief of Staff Mr. Bhaskar Vittal Karkera Chief of Wheels Mr. Naveen Vashisht National Business Manager - Used Wheels Mr. Sachin Kumar Jain National Credit Manager – Wheels Mr. Vivek Tripathi Chief of Strategy – Commercial Banking Mr. Pankaj Sharma National Business Manager – Secure Business Loans (MSME) Mr. Aalekh Vijayvargiya National Credit Manager – Secure Business Loans (MSME) Mr. Aditya Sharma Chief Technical and Legal Officer - Mortgages Mr. Alok Gupta Chief Risk Officer Mr. Ashok Kumar Khandelwal Chief Compliance Officer Mr. Mayank Markanday Chief of Credit Card Business and Merchant Solution Group Mr. Amit Mathur Chief of Credit – Agri Banking, Business Banking and REG Mr. Vinay Vaish Chief of Credit Risk Mr. Ankur Tripathi Chief Information Officer Mr. Sharad Goklani Chief Technology Officer Mr. Gaurav Jain Lead – Tech Initiatives and Distribution Strategy Mr. Shantanu Prasad Chief Treasury and Wholesale Liability Mr. Vivek Tripathi Chief of Human Resource Mr. Sumit Dhar Head of Internal Audit Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Financial summary

Table 4: Profit and Loss statement (Rs mn, year ending March 31)

FY19 FY20 FY21 FY22E FY23E Interest earned 29,488 42,864 49,501 59,431 73,498 Interest expended 16,066 23,769 25,846 30,730 38,650 Net interest income 13,423 19,094 23,654 28,700 34,848 Other income 4,620 7,061 14,515 8,933 12,252 Staff cost 6,011 7,596 9,802 11,910 14,941 Depreciation 639 767 920 1,104 1,325 Other operating expenses 4,174 5,816 5,862 7,705 10,251 Total operating cost 10,824 14,179 16,584 20,719 26,517 4,813 6,582 6,783 8,809 11,576 Pre -provisioning op profit 7,219 11,977 21,586 16,914 20,583 6.2% 3.9% 3.7% Provisions & contingencies 1,418 2,832 7,001 4,938 5,297 Profit before tax & exceptional items 5,801 9,145 14,585 11,976 15,286 Exceptional items Profit before tax & exceptional items 5,801 9,145 14,585 11,976 15,286 Income taxes 1,983 2,392 2,878 3,018 3,852 PAT 3,818 6,753 11,707 8,958 11,434

Source: Company data, I-Sec research

Table 5: Balance sheet

(Rs mn, year ending March 31)

FY19 FY20 FY21 FY22E FY23E Capital 2,924 3,041 3,122 3,122 3,122 Reserves & surplus 28,705 40,727 59,630 67,839 78,523 Net worth 31,629 43,768 62,752 70,961 81,645 Total borrowings 2,80,358 3,67,478 4,30,087 5,14,011 6,61,428 Banks 54,173 69,349 56,238 56,261 84,488 NCDs/Bonds 24,391 18,250 7,030 7,033 10,561 Commercial papers/CDs 7,570 18,250 7,030 7,033 10,561 Term Deposits & CASA 1,94,224 2,61,630 3,59,790 4,43,684 5,55,818

Provisions 7,025 7,025 7,025 7,025 7,025 Other Liabilities 7,216 5,645 16,045 18,941 22,200

Total liabilities & stockholders' equity 3,26,228 4,23,916 5,15,910 6,10,938 7,72,299 Loans & advances 2,28,187 2,69,924 3,46,089 4,36,679 5,54,570 Investments 71,617 1,06,682 1,08,154 1,27,823 1,60,490 Cash and Balance 17,402 33,697 47,813 30,841 39,686

Fixed Assets 4,470 4,480 4,824 5,429 6,110 Current & other assets 4,552 6,648 9,033 10,166 11,442

Total Assets 3,26,228 4,21,431 5,15,913 6,10,938 7,72,299

Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Table 6: Key ratios

FY19 FY20 FY21 FY22E FY23E Growth (%): AUM 49.2 29.0 22.2 23.2 27.0 Loan book (on balance sheet) 72.2 19.0 28.4 24.5 27.0 Total Assets 73.2 29.9 21.7 18.4 26.4 Total Deposits 145.7 34.7 37.5 23.3 25.3 Total NDTL 80.2 31.1 17.0 19.5 28.7 Total Investments 134.8 49.0 1.4 18.2 25.6 Interest Income 66.9 45.4 15.5 20.1 23.7 Interest Expenses 94.3 48.0 8.7 18.9 25.8 Net Interest Income (NII) 42.7 42.3 23.9 21.3 21.4 Non-interest income 19.1 52.8 105.6 -38.5 37.2 Net Income 35.8 45.0 45.9 -1.4 25.2 Total Non-Interest Expenses 52.1 39.3 0.8 31.4 33.1 Pre provisioning operating profits (PPoP) 25.3 65.9 80.2 -21.6 21.7 PAT 30.7 76.9 73.4 -23.5 27.6 EPS 30.7 65.7 73.4 -23.5 27.6 CA 176.0 3.0 46.5 26.2 26.2 SA 44.0 6.6 148.5 26.2 26.2 Time deposits 192.7 48.9 29.8 23.9 26.2 Yields, interest costs and spreads (%) NIM on AUM 6.7 7.0 6.9 6.8 6.6 Yield on loan assets 11.0 12.5 11.5 11.5 11.6 Average cost of funds 7.4 7.3 6.5 6.5 6.6 Interest Spread on loan assets 3.6 5.1 5.0 5.0 5.0 Operating efficiencies Non-interest income as % of net income 34.4 37.0 61.4 31.1 35.2 Cost to income ratio (%) 60.0 54.2 43.4 55.1 56.3 Op.costs/avg AUM (%) 4.2 3.8 3.5 3.7 3.8 No of employees 12623 17112 17512 17912 18312 Average annual salary (Rs '000) 476.2 443.9 559.7 664.9 815.9 Salaries as % of non-int.costs (%) 55.5 53.6 59.1 57.5 56.3 AUM/employee(Rs mn) 19.0 18.0 21.5 25.9 32.2 Number of asset branches 83 31 51 71 91 AUM/asset branch(Rsm) 2882.0 9957.4 7394.5 6543.0 6483.2 Balance Sheet Structure Loans/ deposits (%) 117.5 103.2 96.2 98.4 99.8 Loans/ Total assets 69.9 64.0 67.1 71.5 71.8 Loans/NDTL 81.4 73.5 80.5 85.0 83.8 CA% of NDTL 3.9 3.0 3.8 4.0 3.9 SA% of NDTL 8.9 7.3 15.4 16.3 16.0 CASA% of NDTL 12.8 10.3 19.2 20.3 19.9 Total deposits as % of NDTL 69.3 71.2 83.7 86.3 84.0

Capital Structure Leverage (x) 7.2 6.2 5.5 6.2 6.8 CAR (%) 19.4 22.0 22.0 21.8 20.0 Tier 1 CAR (%) 16.0 18.4 19.2 19.0 17.3 Tier 2 CAR (%) 3.4 3.6 2.8 2.8 2.8 Tier 1 Capital (Rs mn) 30,530 41,320 56,477 63,865 73,481 Tier 2 Capital (Rs mn) 6,410 8,180 8,087 9,240 11,681 RWA (Rs mn) 1,91,330 2,25,100 2,94,070 3,36,016 4,24,764 Asset quality and provisioning GNPA (%) 2.0 1.7 4.3 3.5 3.2 NNPA (%) 1.3 0.8 2.2 1.4 1.2 GNPA (Rs mn) 4701 4578 15028 15284 17746 NNPA (Rs mn) 2945 2173 7555 5961 6832 Coverage ratio (%) 37.4 52.5 49.7 61.0 61.5 Credit costs as % of average AUM 0.7 1.0 2.0 1.2 1.0 Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

Table 7: DuPont analysis (on average AUM)

(%) FY19 FY20 FY21 FY22E FY23E Interest earned 11.5 11.5 10.6 10.5 10.6 Interest expended 6.2 6.4 5.5 5.5 5.6 Gross Interest Spread 5.2 5.1 5.0 5.1 5.0 Credit cost 0.6 0.8 1.5 0.9 0.8 Net Interest Spread 4.7 4.4 3.6 4.2 4.3 Operating cost 4.2 3.8 3.5 3.7 3.8 Lending spread 0.5 0.6 0.0 0.5 0.4 Non-interest income 1.8 1.9 3.1 1.6 1.8 Operating spread 2.3 2.4 3.1 2.1 2.2 Exceptional items 0.0 0.0 0.0 0.0 0.0 Final Spread 2.3 2.4 3.1 2.1 2.2 Tax rate (%) 0.8 0.6 0.6 0.5 0.6 ROAAUM 1.5 1.8 2.5 1.6 1.7 Effective leverage (AAUM/ AE) 9.5 9.9 8.8 8.4 9.1 RoAE 14.0 17.9 22.0 13.4 15.0 Source: Company data, I-Sec research

AU Small Finance Bank, July 29, 2021 ICICI Securities

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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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