Buy AU Small Finance Bank; target of Rs 750: Sharekhan

Buy

Sharekhan's research report on AU Small Finance Bank

Overall, FY25 has been tough for the bank on higher interest rates, tight liquidity, and high stress in unsecured loans, but we believe profitability/ return ratios have broadly bottomed out. Although Q4 earnings missed estimates on accelerated provisioning for unsecured loans, the PCR surged. Asset quality improved with slippages declining q-o-q however slippages still remained on the higher side. Policy tailwinds, better liquidity, likely peaking out of stress in H1FY26 would aid profitability in FY26E. The bank is reasonably confident that improvement will be largely seen in H2FY26 led by a lower repo rate and normalisation of credit cost. Guidance on growth remained intact at 20-25%.

Outlook

We upgrade our rating on the stock from Hold to Buy with a revised PT of Rs. 750 given steady growth outlook and improving profitability. RoA likely to expand by 20-30 bps over FY25-27E. The stock trades at 2.3x/2.0x its FY2026E/FY2027E ABV estimates.

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AU Small Finance Bank - 23042025 -khan