AU SFB Gets 'Buy' From Goldman Sachs As Earnings Growth Likely To Outpace Peers

Goldman Sachs has reiterated its Buy rating on AU Small Finance Bank Ltd., despite lowering its target price to Rs 796 from Rs 813. The bank remains an attractive 'Growth at a Reasonable Price' play, with a robust earnings growth profile that is expected to outpace its peers in the coming years, it said.

Goldman Sachs sees the valuation de-rating over the past six months as a potential opportunity for investors, given AU’s strong earnings growth prospects from financial year 2025-2027.

AU Small Finance Bank has underperformed the Bank Nifty index recently, mainly due to concerns over profitability amid macroeconomic challenges and portfolio risks in microfinance and credit cards. Additionally, investor risk aversion towards mid-sized private banks, triggered by recent issues at IndusInd Bank Ltd., has added pressure on AU’s stock.

Despite these concerns, Goldman Sachs believes the bank’s current valuation presents an opportunity. With a healthy return outlook, including 1.5% ROA, 2.8% RORWA, and 13% ROE in financial year 2025, the brokerage sees a strong risk-reward scenario.

The brokerage believes AU Small Finance’s growth trajectory could be enhanced if the bank secures a universal banking license. This would address some of the regulatory concerns, strengthening investor confidence.

Goldman Sachs expects AU Small Finance Bank to start delivering strong growth in the second half of financial year 2026 as loan losses related to its microfinance and credit card portfolios peak. Over fiscal 2025-2027, AU Small Finance is forecast to achieve 31% earnings growth, outperforming the 28% consensus estimate. This growth is expected to come with an average 1.6% ROA and 15% ROE.

The shares of AU Small Finance Bank rose as much as 2.98% to Rs 574.50 apiece, the highest level since Feb. 11. The stock pared gains to trade 1.89% higher at Rs 568.45 apiece, as of 9:27 a.m. This compares to a 0.25% advance in the NSE Nifty 50 Index.

It has risen 0.97% in the last 12 months and 0.12% year-to-date. The relative strength index was at 60.

Out of 29 analysts tracking the company, 19 maintain a 'buy' rating, four recommend a 'hold,' and six suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 22.7%.