Buy AU Small Finance Bank; target of Rs 735: Motilal Oswal

Motilal Oswal is bullish on AU Small Finance Bank has recommended buy rating on the stock with a target price of Rs 735 in its research report dated July 25, 2024.

Broker Research

July 30, 2024 / 22:18 IST

BUY

26 Aug, 2025 12:21

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Todays L/H

Motilal Oswal's research report on AU Small Finance Bank

AUBANK reported 1QFY25 PAT of INR5.02b, significantly ahead of our estimates, led by controlled opex. NII stood at INR19.2b (in line), while NIMs improved 90bp QoQ to 6%, benefitting from the merger with Fincare SFB.PPoP stood at INR9.9b (22% beat) as opex came in 13% lower than our estimate. C/I ratio thus declined sharply to 59.9% vs. 64.9% in 4QFY24. Advances, adjusted for the merger, grew 5% QoQ, led by both retail and wholesale. Deposits, adjusted for the merger, remained broadly flat QoQ, as the bank used a calibrated approach to stay away from high-cost deposits. As a result, the overall CD ratio jumped to 92% in 1QFY25.

Outlook

We expect the merger to drive business growth, with the expansion in a new geography along with improved product offerings. The conversion to a universal bank will further enable healthy growth and strengthen market position. We largely maintain our estimates, resulting in FY26E RoA/RoE of 1.7%/ 15.5%. Reiterate BUY with a TP of INR735 (based on 2.7x FY26E BV).

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