AU Small Finance Bank shares tumble 2% as Kotak flags lofty valuations, downgrades to 'sell'

Shares of the firm have rallied over 40 percent over the past six months.

Private lender AU Small Finance Bank Ltd shares tumbled in trade on Monday, July 14, after domestic brokerage Kotak Institutional Equities downgraded its rating on the stock, while increasing the target price.

Kotak Institutional Equities cut its outlook on the stock to 'sell', from 'add' earlier, but hiked the target price to Rs 700 per share, from Rs 650 earlier. This indicates a 15 percent downside from the previous session's closing price.

At 10.45 a.m., shares of AU Small Finance Bank were quoting Rs 806.85, lower by 1.7 percent on the NSE, compared to the last close. Over the past six months, shares of the bank have rallied over 40 percent in trade, leading the brokerage to flag elevated premiums.

The brokerage also noted that AU Small Finance Bank’s profitability in FY25 has been impacted by challenges in its unsecured lending portfolio, but these concerns are likely to ease in the current fiscal year.

If macro conditions improve, the bank has the potential to outperform peers in terms of business growth. However, Kotak flagged that the recent surge in the stock price has diminished the attractiveness of the risk-reward profile.

Given the stretched valuation, Kotak said it would rather play the cyclical recovery through other, more reasonably priced banking names.

Out of 34 analysts tracking the stock, 23 recommend a 'buy', six suggest a 'hold', while five experts have a 'sell' rating.

The bank's revenue for the financial year ending March 2025 stood at Rs 18,590 crore, which is an increase compared to Rs 12,300 crore in March 2024. The net profit for the same period was Rs 2,106 crore, up from Rs 1,535 crore in the previous year.

Follow our market blog to catch all the live updates

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.