AU Small Finance zooms 102% from March low; Motilal Oswal sees more upside

Notwithstanding the strong rally in the stock price, the brokerage firm remains excited about AU SFB's growth and earnings prospects and reiterate it as preferred BUY in the mid-size banking space.

AU Small Finance Bank share price today

 

Shares of AU Small Finance Bank (SFB) hit a new high of ₹967.25, gaining nearly 2 per cent on the BSE in Tuesday’s intra-day trade on expectations of strong business growth. In comparison, the BSE Sensex was down 0.36 per cent at 84,794 at 12:59 PM.

 

Thus far in the calendar year 2025, AU SFB has outperformed the market by surging 70 per cent, as against 8 per cent rise in the BSE Sensex. In the last nine months, the stock price of AU SFB has more-than-doubled or zoomed 102 per cent from its 52-week low of ₹479 on March 18, 2025.  READ LATEST STOCK MARKET UPDATES TODAY LIVE

What’s driving AU SFB stock price?

 

AU SFB, the largest SFB by asset size, has demonstrated consistent growth, with total assets increasing from ₹18,833 crore as on March 31, 2018, to ₹1.65 trillion (reported) as on September 30, 2025. CareEdge Ratings expects the bank to report a healthy growth in its advances and deposits in the near-to-medium term.

 

AU SFB primarily focuses on the retail segment, which carries higher yields. Despite its relatively higher cost of funds, the bank continues to maintain a strong net interest margin (NIM) in the range of 5 per cent–6 per cent, higher than that of universal banks. The bank’s net interest margin (NIM) further improved, following the addition of the higher-yielding Fincare portfolio, which included microfinance.

 

Although profitability improved on an absolute basis due to the increase in the bank’s size, the ROTA fell to 1.48 per cent and 1.41 per cent in FY25 and H1FY26, respectively, against 1.54 per cent in FY24. Moderation in return ratios was primarily driven by elevated credit costs and interest income reversals arising from higher slippages in the microfinance and credit card segments, the rating agency said in its rationale.

 

Credit costs are expected to remain elevated in FY26 due to continued stress in the microfinance portfolio. However, CareEdge Ratings expects AU SFB to maintain a healthy profitability in the medium term.

 

However, the net stressed assets (net stressed assets = Net NPA +Net Std. Restructured + Net Security Receipts) to net worth ratio also deteriorated marginally from 6.08 per cent as on March 31, 2024, to 6.89 per cent as on September 30, 2025. In response to the stress in the microfinance portfolio, the bank reduced its microfinance exposure from 7.3 per cent of the loan book in September 2024, to 5.0 per cent as on September 30, 2025, CareEdge Rating said.  ALSO READ | Ajmera Realty shares gain 4% as new project sees 81% sell-out in 24 hours

Motilal Oswal Financial Services sees more upside in AU SFB stock price

 

According to Motilal Oswal Financial Services, AU SFB remains well-positioned to deliver best-in-class business growth and earnings compound annual growth rate (CAGR), supported by steady improvement in operating metrics and strong execution across its diversified secured businesses. Secured businesses across vehicle finance, mortgages and commercial banking continue to perform well and offer a strong growth outlook in the coming years.

 

The bank’s asset quality cycle is showing signs of bottoming out, with slippages and credit costs moderating in Q2 and cost efficiency in microfinance institution business showing further improvement. This provides confidence that credit costs will remain within the 1 per cent as per FY26 guidance and trend toward the long-term 75-85bp range thereafter, the brokerage firm said.

 

Meanwhile, the Reserve Bank of India’s (RBI’s) in-principle nod for the universal bank license is a remarkable milestone and will meaningfully enhance brand's trust, unlock broader deposit pools, improve CoF, and accelerate cross-selling across wealth, insurance, FX and payments. With the cost of funds already declining and NIMs expected to expand over the coming quarters, the margin trajectory appears constructive.

 

Notwithstanding the strong rally in the stock price, the brokerage firm remains excited about AU SFB’s growth and earnings prospects and has reiterated it as preferred BUY in the mid-size banking space. Analysts revised the projected target price to ₹1,100 (premised on 3.3x Sep’27E BV).