Buy AU Small Finance Bank; target of Rs 775: Motilal Oswal

Buy

Motilal Oswal's research report on AU Small Finance Bank

AU Small Finance Bank (AUBANK) posted a 4QFY25 PAT of INR5.04b (7% beat; -5% QoQ), amid better other income partly offset by higher provisions. NII grew 3.5% QoQ to INR20.9b (in line), while NIM contracted 6bp QoQ to 5.8%, primarily on account of a change in asset mix. PPoP grew 7.2% QoQ to INR12.9b (7% beat) as other income was 12%higher than our estimate (with treasury gains of INR1b). Opex was broadly in line. The C/I ratio thus stood largely flat at 54.7% (vs. 54.4% during 3QFY25). Provisions came in higher at INR6.4b (11% higher than MOFSLe, 27% QoQ increase). The bank made an accelerated provision of INR1.5b to strengthen its PCR, which improved to 68% from 61.2% in 3QFY25. Business growth was healthy with strong advances growth of 8% QoQ to INR1.07t; deposits too came in very strong at 11% QoQ to INR1.24t. CD ratio thus moderated to 86.2% (88.7% in 3QFY25). Slippages stood at INR8.9b vs. INR9.6b in 3QFY25. GNPA/NNPA ratios improved 3bp/17bp QoQ to 2.28%/0.74%. PCR improved 683bp QoQ to 68.1%. Credit costs as % of total average assets stood at 1.3% for FY25.

Outlook

We raise our earnings estimates by 4%/6% for FY26/27 and expect the bank to deliver an RoA/RoE of 1.71%/17.7% by FY27. Reiterate BUY with a TP of INR775 (based on 2.5x FY27E BV).

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AU Small Finance Bank - 23042025 - moti