Buy AU Small Finance Bank; target of Rs 1275: Motilal Oswal

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • AUBANK's strong NII growth, driven by a high-yielding asset mix and robust business growth, supports its best-in-class earnings growth trajectory.
  • The bank's operating expenses are expected to moderate, leading to a decline in the C/I ratio toward ~55-56% over FY27-28E.
  • Credit costs stood at 0.8%, below the credit cost guidance of 0.9%, with asset quality remaining encouraging despite seasonality.
  • AUBANK's diversified lending portfolio and strong momentum position it for sustained credit growth of 25% and above.

Thesis Validation Checklist

  • Watch for sustained business growth, stable credit costs, and steady NIMs over the next ~12 months.
  • Monitor the bank's ability to maintain its deposit pricing premium and improve operating efficiency.
  • Track the growth of AUBANK's mortgage portfolio and its progress in rebuilding the mortgage franchise in southern markets.
  • Keep an eye on the bank's asset quality, particularly in the unsecured portfolio, and its ability to manage seasonal asset quality pressures.