Nuvama has maintained its Reduce rating on AU Small Finance Bank, with a target price of ₹650, indicating an 18% downside from the current market price of ₹790.30. The brokerage flagged a soft Q1FY26 performance, marred by margin pressure and rising delinquencies across key segments.
Net interest margin (NIM) declined sharply by 28 basis points, worse than the 25bps drop Nuvama had forecasted. This was driven by a mix of south-based mortgage stress, sluggish recovery in microfinance (MFI), and elevated delinquencies in the credit card segment. As a result, the bank raised its credit cost guidance from 85 basis points in Q4FY25 to 1% in Q1FY26.
While the decline in margins was somewhat cushioned by lower operating expenses and higher trading gains, the bank’s core pre-provision operating profit (PPOP) still fell 15% quarter-on-quarter, though it was up 8% on a year-on-year basis.
Nuvama remains cautious on AU Small Finance Bank, citing its exposure to stressed loan segments, weakening margins, and the likelihood of further asset quality challenges in the near term. The downgrade in credit cost guidance reinforces these concerns.
Disclaimer: The brokerage view is based on publicly available research and does not constitute investment advice. Please consult a certified financial advisor before making any investment decisions.
