AU Small Finance Bank share price jumps 6% after Q4 results. Should you buy or sell?
AU Small Finance Bank share price jumped more than 6% on Wednesday after the private lender reported its Q4 results. AU Small Finance Bank shares rallied as much as 6.43% to ₹652.75 apiece on the BSE.
The private sector bank, AU Small Finance Bank, reported a net profit of ₹504 crore in the fourth quarter of FY25, registering a growth of 18% from ₹371 crore in the year-ago period.
The bank’s net interest income (NII) in Q4FY25 surged 57% year-on-year (YoY) to ₹2,094 crore, while other income for the quarter increased 41% to ₹761 crore. Net interest margin (NIM) improved to 5.8% from 5.1%, YoY.
Pre-provisioning operating profit (PPoP) during the quarter ended March 2025 nearly doubled to ₹1,292 crore from ₹650 crore in the same quarter last fiscal year.
Asset quality improved sequentially as the bank’s gross non-performing assets (NPA) ratio fell to 2.28% at the end of March 2025 quarter from 2.31% in the December 2024 quarter. Net NPA ratio declined to 0.74% from 0.91%, QoQ.
The bank’s gross loan portfolio grew 20% YoY, while deposits growth stood at 27%.
Should you buy AU Small Finance Bank shares?
Analysts highlighted the elevated credit cost of the bank, which they believe is unlikely to normalise soon.
“With elevated provisions in 2HFY26, we seem to be nearing the end of the pain from unsecured retail loans. With 60% of the P&L provisions in 2HFY25 going toward unsecured retail, the risks of an unsecured business have become conspicuous. While credit cost is unlikely to normalize soon, we expect it to decline enough to offset any pressure from a declining NIM and probably more,” Kotak Institutional Equities said.
Given the broader macro uncertainty, the brokerage firm prefers to wait and establish a recovery in the core secured businesses before turning more positive but acknowledges that the discomfort on valuations has declined.
Kotak Equities maintained an ‘Add’ rating on AU Small Finance Bank shares with an unchanged target price of ₹650 per share, valuing the bank at a premium to peers at 2.1X March 2027E BVPS (adjusted) and ~14X EPS for mid-teen RoEs in the medium term.
Nuvama Institutional Equities noted that the bank’s guidance was for an elevated credit cost in H1 but an improvement in H2FY26E.
“Credit cost shall settle at a lower 85 bps in FY26 versus 1.3% YoY with H1 being elevated due to MFI write-offs. Credit cost shall fall to 6–7% from 16% in Q4FY25 on the cards and to 3.5% in MFI. NIM shall be under pressure in FY26 due to repricing of 70% loans and lower than system CASA. Loan growth shall be 21–25% YoY,” Nuvama said.
The brokerage firm reiterated its ‘Reduce’ rating with AU Small Finance Bank share price target of ₹530, as it finds the risk-reward to be unfavourable at the current 2.3x BV FY26E for RoA of ~1.5%.
AU Small Finance Bank share price has rallied 19% in one month and the stock has gained 16% on a year-to-date (YTD) basis. Over the past one year, AU Small Finance Bank shares have risen 5%, while the banking stock has delivered multibagger returns of 152% in five years.
At 11:00 AM, AU Small Finance Bank shares were trading 5.34% higher at ₹646.05 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
