Nomura downgraded AU Small Finance Bank to reduce from neutral and slashed its target price to Rs 500, citing ongoing asset quality stress and a weaker growth outlook. The bank’s management lowered its FY25 loan growth guidance to 20% from the earlier 25% and increased credit cost estimates to 1.5-1.6% from 1.3-1.4%.
The Q3 FY25 results reflected these challenges, with net profit declining 7.5% QoQ to Rs 528.4 crore, while NII grew 2.4% QoQ to Rs 2,022.5 crore. Gross NPA rose to 2.31% from 1.98% QoQ, while net NPA increased to 0.91% from 0.75%. Gross NPA in absolute terms rose sharply to Rs 2,335.5 crore from Rs 1,901.7 crore in Q2 FY25, and net NPA increased to Rs 905.6 crore from Rs 706.7 crore sequentially.
Nomura highlighted that while credit costs in the credit card segment appear to have peaked, stress in the microfinance segment is expected to persist for 2-3 quarters. The brokerage cut its FY26-27 EPS estimates by 5% and expects the near-term challenges to weigh on the bank’s performance, leading to a cautious outlook.
