AU Small Finance Bank shares rally 6% on strong Q4 profit; brokerages split on outlook

Shares of AU Small Finance Bank surged as much as 6.4% to Rs 652.75 on Wednesday after the lender reported a 36% year-on-year increase in fourth-quarter net profit, driven by robust income growth and improved asset quality metrics.

The Jaipur-based lender posted a net profit of Rs 504 crore for the quarter ending March 2025, up from Rs 371 crore in the same period last year. The growth was fueled by a 57% year-on-year surge in net interest income, which reached Rs 2,094 crore, along with a nearly two-fold rise in pre-provisioning operating profit (PPoP) to Rs 1,292 crore. The bank’s net interest margin also improved to 5.8% from 5.1% a year ago.

Gross non-performing assets (NPA) ratio showed sequential improvement, dipping to 2.28% from 2.31% in the prior quarter. The bank’s gross loan portfolio expanded 20% year-on-year to Rs 1.16 lakh crore, while total deposits rose 27% to Rs 1.24 lakh crore.

Kotak Institutional Equities

Kotak Institutional Equities maintained its “Add” rating with a target price of Rs 650, close to the stock’s current level. The brokerage highlighted the improving outlook in the lender’s unsecured retail portfolio, particularly microfinance, though it flagged persistent weakness in asset quality and elevated slippages at 3.6%. At the current market price, the target implies a negligible downside.

The brokerage said it would prefer to wait for clearer signs of recovery in the core secured businesses of the lender, while acknowledging that valuation discomfort has eased.

HDFC Securities

HDFC Securities retained a “Reduce” call on the stock with a revised target price of Rs 595, implying an 8.8% downside from Tuesday’s levels. The brokerage cited pressure on margins due to a higher secured mix and expected credit cost normalisation in FY26.Despite raising FY26/27 earnings estimates by 7% each, HDFC Securities flagged risks in unsecured segments and expected margins to remain under pressure.

Nuvama

Nuvama flagged a miss on credit cost expectations, which rose to 2.5% of gross loans in Q4, led by higher provisions in the credit card segment. Though the brokerage did not assign a rating or target in the note, Nuvama expressed caution, noting NIM compression and only marginal growth in the bank’s core PPoP at 2.7% quarter-on-quarter.

Centrum Broking

Centrum Broking reiterated its “Buy” rating and raised its target price to Rs 772, implying an upside of nearly 18% from current levels. The brokerage cited strong merger synergies from the integration with Fincare, improving asset quality in the microfinance portfolio, and expectations of a return to 1.85% return on assets (RoA) by FY27.

Centrum sees the stock as undervalued, trading at two standard deviations below historical averages, and believes the bank is well-positioned to deliver an 18% CAGR in book value through FY27.

Also read | Buy AU Small Finance Bank, target price Rs 650: JM Financial

Outlook

While AU Small Finance Bank’s Q4 results showed signs of stabilisation in asset quality and strength in core income metrics, brokerages remain divided on the outlook. Shares of the company have risen 6.6% over the past year and 19% in the last month. In the past week alone, the stock has gained 12%.

Technical indicators suggest continued momentum. The stock is currently trading above eight of its key simple moving averages, including the 50-day, 100-day, 150-day, and 200-day SMAs. The 14-day Relative Strength Index (RSI) stands at 66.4, signalling that the stock is approaching overbought territory.

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