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Motilal Oswal Report
AU Small Finance Bank Ltd. is well-positioned to deliver superior growth with a steady improvement in operating profitability as it benefits from the synergies following its merger with Fincare SFB. This merger enables the bank to benefit from a higher-yielding loan book and a broader product suite, thereby driving growth, particularly in the South.
The bank's recent application for a Universal Bank license is expected to ease regulatory requirements and enhance brand positioning, thus supporting growth while improving deposit productivity.
While net interest margin may moderate slightly due to the rising cost of funds, improved disbursement yields and potential rate cuts are likely to improve margins over FY26E.
AU Small Finance Bank aims for a 1.6% RoA in FY25 with a potential for 1.8% by FY27E. We estimate AU SFB to deliver ~24% loan growth CAGR and ~32% PAT CAGR over FY25-FY27.
With strong execution capabilities and a proven management track record, we remain optimistic about AU SFB's growth and reiterate a Buy rating with a revised target price of Rs 830 (premised on 3.2 times FY26E book value).
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