Motilal Oswal Maintains Buy Recommendation on AU Small Finance Bank with a Target Price of Rs 1250

AU Small Finance Bank (AUBANK) Financial Report

Key Highlights

• AU Small Finance Bank has successfully transitioned from a niche vehicle finance NBFC to a diversified, pan-India banking franchise, poised to attain universal bank status.
• The bank has established itself as the clear leader in the SFB space, with a market capitalization over 2x that of all SFB peers combined, supported by superior scale and consistent profitability.

Financial Projections

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• We estimate AUBANK to deliver a compound annual growth rate (CAGR) of 24% in loans over FY26-28, driven by a scalable and diversified franchise.
• This growth is expected to translate into a 36% CAGR in earnings over the same period, reinforcing the bank's trajectory toward stronger profitability.
• We forecast Return on Assets (RoA) and Return on Equity (RoE) for FY27 to improve to 1.74% and 17.2%, respectively.

Outlook and Recommendation

• We reiterate a BUY rating on AUBANK with a target price of INR1,250 (3.7x September 2027 Estimated Annualized Book Value).
• Key upside triggers include accelerating earnings momentum driven by lower Cost of Funds (CoF) and credit costs, a potential capital raise in FY27, and the transition to universal banking.

Valuation

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• The target price of INR1,250 represents a 3.7x multiple of the estimated September 2027 Annualized Book Value.