Reduce AU Small Finance Bank; target of Rs 600: Emkay Global Financial

Reduce

Emkay Global Financial's research report on AU Small Finance Bank

AU SFB continues to grow its credit portfolio at a healthy pace, defying industry trend and the declining MFI/Card book. However, higher CoF and interest reversal on MFI/Card NPAs has led to continued margin correction (10bps QoQ). This, along with elevated credit cost, has kept the bank’s RoA in check at 1.3% in 4Q and at 1.5% in FY25. Though the bank remains confident of clocking strong growth in FY26, it expects margins to remain soft and credit costs to be elevated in H1FY26. Given the macro uncertainty, and asset quality and cost pressures in the run-up to the transition toward it becoming a universal bank, the management has resisted providing RoA guidance for FY26E. The mgmt expects to secure a universal banking licence in CY25 and would take a call on capital-raising accordingly.

Outlook

We retain REDUCE with unchanged TP of Rs 600 (2x FY27E ABV), and wait for better clarity on the asset quality/margin trajectory.

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AU Small Finance Bank - 23042025 - emkay