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Motilal Oswal Report
The brokerage firm Motilal Oswal has largely maintained its earnings, and estimate a PAT CAGR of 35% over FY26-28. AU Small Finance bank Ltd. remains the brokerage's top pick among mid-sized private banks.
Motilal Oswal has reiteratee its Buy rating with a target price of Rs 1,275, premised on 3.4 times FY28E book-value).
Valuation and view
AU SFB delivered a healthy quarter, led by steady growth, better-than-expected net interest margins, and lower credit costs. NIM contracted 7bp QoQ, primarily due to the seasonally high day count and lower slippages in Q4.
Growth continues to remain among the best in the industry, supported by a high-yielding asset mix and strong momentum.The brokerage remains positive on the bank's underlying growth trajectory.
Operating expenses are expected to moderate, leading to a decline in the C/I ratio toward ~55-56% over FY27-28E. Credit costs stood at 0.8% (the bank has made a prudent provision of Rs 230 million to strengthen provision in select products).
Despite the seasonality associated with Q1, asset quality remained encouraging, with stress levels easing, recovery visible in the unsecured portfolio, and growth gaining traction in the segment. With healthy NIMs, credit costs expected to remain steady, and sustained growth in higher-yielding loans, we expect AU SFB to deliver best-inclass earnings growth over the medium term.
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