Motilal Oswal Recommends Purchase of AU Small Finance Bank Shares with a Near-Term Target Price of Rs 1275

AU Small Finance Bank Delivers Strong Q4FY26 Performance

AU Small Finance Bank (AUBANK) reported a robust performance in the fourth quarter of fiscal year 2026 (4QFY26), driven by a significant increase in Net Interest Margin (NIM) and lower-than-expected provisions. The bank's business growth accelerated, with a year-over-year (YoY) increase of 24% and a quarter-over-quarter (QoQ) growth of 9.6%.

The bank's profit after tax (PAT) for 4QFY26 stood at INR8.3 billion, marking a notable 65% YoY increase (5% beat). This growth was primarily driven by the healthy net interest income (NII) and a sharp decline in provisions. The NII came in at INR25.8 billion, representing a 23% YoY increase, which was in line with expectations. The bank's NIMs expanded by 24 basis points (bps) QoQ to 5.96%, a testament to its sustained industry-leading growth of 25% YoY and 9% QoQ.

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We retain our earnings estimates for AU Small Finance Bank and expect a PAT compound annual growth rate (CAGR) of 35% over fiscal years 2027-28. The bank remains our top pick among mid-size private banks, with a BUY recommendation and a target price of INR1,275, based on 3.4x the estimated book value (BV) for September 2027.