Buy AU Small Finance Bank, target price Rs 650: JM Financial
Investment Rationale
AU Small Finance Bank reported strong growth in gross advances at Rs 1157 billion (+6.2% QoQ, +19.9% YoY). Excl. securitised/assigned portfolio, loan growth stood at (+7.7% QoQ, +25.8% YoY). Robust Deposit growth: Further, despite the system wide challenges in deposit accretion, AU reported robust growth in deposits (+10.7% QoQ, +27.2% YoY). However, CASA ratio witnessed a slight decline to 29.2% (vs 30.6% QoQ) as growth in TD (13% QoQ, +33% YoY) outpaced CASA deposits (+5% QoQ, +15% YoY). Consequently, JM Financial expects a modest increase in CoDs. This along with declining CD ratio (deposit growth being higher than loan growth) means that margins should remain under pressure. Asset quality trends especially in its unsecured portfolio will be the key monitorable in upcoming 4QFY25 results. The brokerage has a BUY rating on the stock with a target price of Rs 650, valuing the bank at 2.1x FY27BVPS.
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