JPMorgan has initiated coverage on AU Small Finance Bank (AUSFB) with a ‘Neutral’ rating and a target price of ₹700, highlighting the bank’s potential for strong earnings growth while cautioning on near-term risks.
JPMorgan expects AU Small Finance Bank to deliver 34% EPS CAGR over FY25-27, driven by robust asset growth and improvements in Return on Assets (ROA). The brokerage notes that AU Small Finance Bank has built an impressive banking franchise since acquiring its small finance bank license in 2017, maintaining strong asset quality through multiple disruptions.
However, JPMorgan has flagged near-term concerns, particularly due to rising delinquencies on the bank’s unsecured loan book. With the Fincare merger, AU Small Finance Bank has expanded its national presence, but the merger also brings with it increased unsecured loan exposure, rising to 12% from 5% pre-merger, at a time when the economic cycle is unfavorable.
JPMorgan also highlighted that AU Small Finance Bank’s current valuation, trading at 19x FY26 P/E, is relatively high compared to mid-tier private banks. This higher valuation reflects optimism, but the bank faces significant near-term volatility on unsecured loans and medium-term execution risks in building out its liability franchise in a competitive banking environment.
With these factors in mind, JPMorgan maintains a Neutral stance on the stock.
Disclaimer: The views and recommendations in this article are based on analysis by JPMorgan and do not reflect the opinions of this publication or the author. Investors should consult their financial advisors before making investment decisions. The publication and the author bear no responsibility for investment losses arising from decisions based on this article.
