AU SFB hits new high, zooms 60% from April low; brokerages see more upside

Business Standard

4 hours ago

Shares of AU Small Finance Bank hit a record high of ₹798.80, gaining 3 per cent on the BSE in Wednesday's intra-day trade in an otherwise weak market on expectations of steady growth and improving profitability outlook.
The stock of the private sector lender has surpassed its previous high of ₹784.90, touched on June 12, 2025. In comparison, the BSE Sensex was down 0.28 per cent at 81,356 at 12:39 PM.
In the past nine trading days, AU Small Finance Bank has rallied 11 per cent after the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) cut the policy repo rate by 50 basis points (Bps) to 5.5 per cent. To accelerate the pace of transmission and give the banking system the comfort of durable liquidity, the RBI cut the cash reserve ratio (CRR) by 100 bp to 3.0 per cent in a staggered fashion starting on September 6, 2025.
In the past month, the stock has outperformed the market by surging 17 per cent, as compared to a 0.86 per cent decline in the benchmark index. The market price of AU Small Finance has bounced back 60 per cent from its three-month low of ₹498.05, touched on April 7, 2025. Track LIVE Stock Market Updates Here
Brokerages' view on AU Small Finance Bank
Mirae Asset Sharekhan reiterates 'buy' rating on AU Small Finance Bank with a revised target price of ₹900, given steady growth and improving profitability outlook. RoA is likely to expand by 20-30 bps over FY25-27E, led by lower credit cost and marginally higher net interest margins (NIMs).
Overall, FY25 has been tough for the bank due 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 front. The bank is reasonably confident that improvement will be largely seen in H2FY26, led by lower policy rate and normalisation of credit cost. Guidance on growth remains intact at 20-25 per cent.
A lower repo rate and normalisation of credit cost (in unsecured segment) will aid profitability from H2FY26 onwards. The bank has guided that NIMs are likely to remain under pressure in H1FY26 due to lower repo rates.
Although bank has taken cut in deposit rates in select buckets of savings account/term deposits in April and June 2025, which should help the bank to partially counter, it is confident that lower deposit rates, lower interest reversals on NPA and ~70 per cent fixed rate asset book should gradually support margins with a lag, the brokerage firm said.
AU Small Finance Bank's March 2025 quarter (Q4FY25) performance was mixed with sustained growth momentum and benefits from operational efficiency, but elevated credit cost in unsecured portfolios. Management expects credit cost to moderate to 75–85 bps in FY26 versus 1.3 per cent in FY25, implying better asset quality performance in the coming quarters, analysts at ICICI Securities said in a result update. Currently, the stock is trading above the brokerage firm's target price of ₹750 per share.
About AU Small Finance Bank
AU Small Finance Bank has had a long and successful history (since its days as an NBFC and now as a bank) in secured credit and its underwriting quality, mainly in the under/unbanked self-employed customer segment that lacks formal income documentation. The bank has a strong skill set and deep experience in its core secured segments. It entered the unsecured business to enhance its product offering/ geographic reach and use it as a key tool to accelerate and retain liability customers.