Buy AU Small Finance Bank; target of Rs 925: Motilal Oswal

Motilal Oswal's research report on AU Small Finance Bank

AU Small Finance Bank (AUBANK) reported a healthy PAT of INR5.6b (13% beat), aided by NIM expansion and healthy business growth. NII expanded 4.9% QoQ to INR21.4b (up 8.6% YoY/ 4.9% QoQ, 6% beat on MOFSLe), aided by 5bp NIM expansion to 5.5%. PPoP grew 6.9% YoY (down 7.8% QoQ) to INR12.1b (8% beat). Provisions stood at INR4.8b (4% higher than MOFSLe, down 10% QoQ). The bank reported 30bp of credit cost in 2Q and 64bp in 1H on total assets. AUBANK reiterated its full-year credit cost guidance of 1% for FY26E. Business growth was robust, with advances growing 22% YoY/5.3% QoQ to INR1.16t; deposits also stood strong at 20.8% YoY/3.8% QoQ.

Outlook

We fine-tune our estimates and project FY27E RoA/RoE at 1.7%/16.7%. We estimate AUBANK to deliver a 30% earnings CAGR over FY25-28E, led by an improvement in business growth, credit cost, and margins. We reiterate BUY with a TP of INR925 (3.0x FY27E BV)