23 Apr , 2025 By : Debdeep Gupta
Shares of AU Small Finance Bank were higher by 5 percent in early trade on April 23, reacting to its fourth-quarter earnings and FY27 guidance, even as the analyst outlook around credit cost and asset quality remain mixed.
The lender, which posted results after market hours on Tuesday, outlined ambitious growth targets for FY27, including extending high RoA (Return on Assets) loans to 72-75 percent of the loan book, improving branch profitability, and lowering the cost-to-income ratio below 60 percent. The lender also guided for a 100-150 basis point rise in current account deposits.
Despite a net interest margin (NIM) moderation during the March quarter, AU Small Finance Bank managed to post a healthy RoA of 1.5 percent - a standout in the mid-sized private banking space.
Morgan Stanley has remained ‘overweight’ on the bank with a target price of Rs 750, adding that AU Small’s superior RoA in a high-rate, tight-liquidity environment sets it apart. The brokerage expects further RoA expansion over next two years as the interest rate cycle turns and microfinance asset quality stabilizes.
Citi, however, has adopted a more cautious stance. While acknowledging the bank's 15 percent sequential rise in fee income and treasury gains of Rs 100 crore, it flagged accelerated provisioning of Rs 150 crore which has pushed credit costs up to 2.5 percent for the quarter. Citi maintained a ‘neutral’ rating with a Rs 625 target, and sees NIMs stabilising around 5.7 percent in FY26 and FY27. It also noted that AU’s application for a universal banking licence is under regulatory review, with an outcome likely in calendar year 2026.
Nuvama, meanwhile, has cut its rating to ‘reduce’ with a price target of Rs 530, citing a credit cost miss of 15 percent versus consensus and rising stress in the card business, where credit costs surged to 16 percent from 11 percent in the previous quarter. The brokerage also pointed to slower sequential growth in pre-provision operating profit (2.7 percent) and a 6 bps drop in NIM, partly offset by calendar effects. It expects credit costs to remain elevated in the first half of FY26, before improving later in the year.
0 Comment