LKP Research's research report on AU Small Finance Bank
AU Small Finance Bank (AU) well-diversified loan portfolio, with a focus on high-yield segments like vehicle finance and MSME loans, is likely to drive advances and interest income growth going forward. The growing deposit bases in the high-interest rate environment have increased the funding costs; however, CASA improvements and possibility of rate cut might help in offsetting the impact. As a result, margins are expected to remain range bound further aided by cost efficient measures. In addition, despite ongoing stress in the unsecured portfolio, the bank’s prudent underwriting practices and secured lending model ensured healthy asset quality, with stable GNPA and NNPA. Moreover, the bank’s strategic acquisition and application for universal bank license would likely help in expanding its reach and gaining market share, thus maintaining the growth momentum.
Outlook
Hence, with the recent stock price correction we initiate our coverage with a BUY rating on the stock, based on 2.4x FY27E BVPS with a target price of ₹730.
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