Au Small Finance Bank Ltd. share price target

Strong loan growth at 8% QoQ was offset by ~40bps QoQ NIM contraction resulting in 9% QoQ decline in AU Small Finance Bank’s (AU) Q1FY24 PAT to INR 3.8bn. NIM settled at 5.7% in Q1FY24 vs 6.1% in Q4FY23 due to 30bps QoQ increase in cost of deposits to 6.6% and flattish QoQ asset yields at 13.4%.

We revise our rating to HOLD from BUY earlier.

The stock currently trades at 3.1x FY25E ABV and we value the stock at 3.6x FY25E ABV to arrive at a target price of Rs 765/share, implying an upside of 16% from the CMP. We reiterate our BUY recommendation on the stock.

AU SFB’s (AU) Q4FY23 has been an eventful quarter – while it continues to deliver robust financial performance as reflected in RoA reaching 2% and RoE at ~16%, re- appointment of Mr. Sanjay Agarwal as MD & CEO and Mr. Uttam Tibrewal as whole- time director for three years (w.e.f. from 19th Apr’23 to 18th Apr’26) and AD-1 license approval testify its successful SFB journey.

AU SFB disclosed that it has received regulatory approval (link) for the re- appointment of Mr. Sanjay Agarwal as MD & CEO and Mr. Uttam Tibrewal as whole- time director for three years (w.e.f. from 19th Apr’23 to 18th Apr’26). We expect this extension to ensure top management continuity.