Sharekhan's research report on AU Small Finance Bank
The merged entity reported healthy operational performance (better than estimates), driven by higher-than-expected NIM expansion and lower opex growth. However, credit cost was higher than the guided range.Asset-quality trends saw normalisation q-o-q vs. the proforma basis. RoA for the merged entity came in at ~1.6%. We believe there could be downside risk in profitability or growth, given the outlook on margins and cost is negative in the near term and retail deposit mobilisation remains a tall task in the current challenging environment. Either growth would be lower or profitability will be challenged.
Outlook
Additionally, if stress build-up is higher than expected in the MFI/credit cards business going ahead, credit cost may also inch higher but the probability is low here. Thus, the uncertain outlook keeps us on the sidelines. We maintain our HOLD rating on AU SFB with an unchanged PT of Rs. 700. The stock trades at 2.5x/2.2x its FY2025E/FY2026E BV estimates.
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