Au Small Finance Bank Ltd. share price target

We maintain our BUY recommendation on the stock.

AU SFB reported weak core performance, with margins declining sharply by 40bps QoQ to 5.4%, although higher treasury gains and surprisingly lower nonstaff opex, amid bidding for a Universal Banking license led to a ~6% PAT beat, at Rs5.8bn/1.5% RoA.

AU Small Finance Bank (AUBANK) reported a 1QFY26 PAT of INR5.81b (5% beat; up 15% QoQ) amid robust other income and controlled opex.

Overall, FY25 has been tough owing to higher interest rates, tight liquidity, and high stress in unsecured loans. Profitability is expected to rebound from H2FY26 as headwinds recede on the margin and asset quality fronts.

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).

We maintain our BUY recommendation on the stock.

Advances growth driven by secured loans; deposit growth was strong compared to system levels

AU SFB’s Q4FY25 performance was mixed with sustained growth momentum and benefits from operational efficiency, but elevated credit cost in unsecured portfolios (MFI + credit card + PL).

FY25 has been weak for the bank marked by elevated stress in unsecured retail loans resulting in a sharp increase in credit costs, higher interest rates and tight liquidity. Q4 earnings missed estimates led by accelerated provisioning on account of the stress in unsecured loans, yet PCR improved.

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.

Strategic pivot towards high yielding assets

We recommend a BUY rating on the stock with a target price of Rs 622/share, implying an upside of 10% from the CMP.

AU SFB’s profitability, post merger in Apr’24, was impacted due to elevated credit cost on the back of higher-than expected delinquencies in its credit card (CC)/microfinance (MFI) portfolios and NIM compression.

We maintain our BUY recommendation on the stock.

AU Small Finance Bank (AUBANK) reported 3QFY25 PAT of INR5.3b (8% beat), led by controlled opex, though provisioning expenses were high.

AU SFB logged a muted performance with a 5% miss on PAT at Rs5.3bn/RoA at 1.5%, mainly on lower other income and elevated provisions owing to ongoing stress in unsecured loans (MFI, Cards, PL) and seasonality impact on the agri and wheels book.

AU SFB’s Q2FY25 performance was mixed with it sustaining profitability (RoA of 1.6%) and growth momentum (loan growth at 6% QoQ) but credit cost continues to be higher than the guided range.

We maintain our BUY recommendation on the stock.

Though credit cost rose sharply, AU SFB reported a sharp earnings beat led by strong fee income/ treasury gains and lower opex. The bank managed to report RoA/RoE at 1.7%/ 14.5% in Q2FY25.

AU Small Finance Bank (AUBANK) reported a 2QFY25 PAT of INR5.71b (16% beat) fueled by healthy other income and controlled opex, which offset higher provisions.