ICICI Securities Recommends AU Small Finance Bank for Investment with a Target Price of Rs 1250

AU Small Finance Bank Shows Resilience in FY26, Setting Stage for Strong FY27 Performance

AU Small Finance Bank (AU SFB) has concluded its fiscal year 2026 on a robust note, marking a solid trajectory for the upcoming fiscal year 2027. The bank's asset quality has strengthened, and credit momentum has seen a resurgence, with key performance indicators returning to normalcy. Notably, credit costs have receded to less than 1% for the first time since the merger, indicating stabilization within the microfinance institution (MFI) and unsecured loan portfolios. Additionally, the gross slippage ratio of less than 2% reflects normalizing incremental stressed asset formation.

In its quarterly performance, the bank witnessed a 24 basis points (bps) quarter-over-quarter (QoQ) expansion in net interest margin (NIM) during Q4FY26. However, management cautioned that the current levels of NIM are influenced by seasonal factors, suggesting a more normalized margin profile ahead. Despite anticipated NIM compression, AU SFB remains committed to its FY27 return on assets (RoA) target of 1.8%, driven by operating efficiencies and moderated credit costs.

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Following a thorough analysis, ICICI Securities has upgraded the stock to BUY from Hold, with a revised target price (TP) of INR 1,250 (earlier INR 1,010). The bank is valued at 3.5x its September 2027 estimated book value per share (BVPS), up from 3.25x its March 2027 estimated BVPS in the previous estimate.