For financial year 2027, the company has guided for High Return on Assets (RoA) Assets to contribute to 72% to 75% of its loan portfolio, while the share of current account deposits is likely to increase by 100 to 150 basis points.
The company plans to make 65% of its branches profitable and bring its cost-to-income ratio down below 60%.
Analyst commentary on the company’s prospects though, is mixed.
Morgan Stanley has an “overweight” rating on AU Small Finance Bank with a price target of ₹750, implying a potential upside of nearly 22% from Tuesday’s close.
Citi has a “neutral” rating on the stock, while Nuvama has a “reduce” rating, with price targets of ₹625 and ₹530 respectively.
Morgan Stanley said the lender delivered an RoA of 1.5%, which was much higher than its peers, despite interest rates, tight liquidity and elevated asset quality stress.
Over the next two years, AU Small Finance Bank’s RoAs can expand as the rate cycle has turned and MFI asset quality improves, Morgan Stanley said.
It added that it stays “overweight” on the only stock in its mid-sized private banks coverage.
Citi said the lender’s robust fee income, which was up 15% sequentially, and treasury gains of ₹100 crore were utilised to create accelerated provisions of ₹150 crore (building 100% coverage on unsecured gross non-performing assets).
Thereby, the bank’s credit cost has elevated to 2.5% sequentially from 2.06%.
AU Small Finance Bank’s net interest margin (NIM) moderated by 7 basis points, as anticipated, due to change in asset mix, Citi said. It has projected NIMs of 5.7% each over FY26 and FY27.
It added that the lender’s universal licence is being reviewed by the regulator and the approval is anticipated in the 2026 calendar year.
Lastly, Nuvama said AU Small Finance Bank’s credit cost missed consensus estimates by 15% in the fourth quarter. Its credit cost gross of recovery income, comparable to its peers, increased to 2.5% of its gross loan portfolio and 1.95% sequentially.
Credit cost in cards increased to 16% from 11% in the previous quarter, it said.
Its Net Interest Margin (NIM) fell six basis points from the previous quarter and was partly shielded by day count, Nuvama said. The bank’s pre-provision operating profit grew slower at 2.7% sequentially, it added.
It said the guidance is for an elevated credit cost in the first half but an improvement in the second half of the financial year 2026 is possible.
Of the 31 analysts that have coverage on the stock, 20 have a “buy” rating, five have a “hold” rating and six have a “sell” rating.
AU Small Finance Bank shares ended the previous session 1.22% lower at ₹616 apiece. The stock has gained 11.9% in the past month.
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