Nuvama Institutional Equities has reiterated its ‘Reduce’ rating on AU Small Finance Bank, while keeping the target price to ₹530, following the bank’s Q4FY25 results that revealed elevated credit costs and soft core operating performance.
The bank posted a net profit of ₹503.7 crore, down 4.7% sequentially, and net interest income (NII) rose 3.5% QoQ to ₹2,093.9 crore. However, Nuvama highlighted that credit costs gross of recovery income rose to 2.5% of gross loans, up from 1.95% in Q3FY25, missing consensus by nearly 15%.
One of the key concerns was the spike in the credit card portfolio, where credit costs jumped to 16% from 11% QoQ. While slippages fell 7% QoQ, aided by improving collection efficiency in MFI and secured loans, the brokerage noted that slippage data is not directly comparable to peers due to differences in accounting methodology.
The net NPA ratio improved to 0.74% (from 0.91% QoQ), and gross NPA stood at 2.28%, marginally better than 2.31% in the previous quarter. Provisions rose sharply to ₹635.1 crore, up from ₹501.7 crore QoQ.
Nuvama also flagged a 6bps drop in NIM, partially cushioned by a favorable day count. While reported PPOP grew 7% QoQ, the core PPOP grew only 2.7%, pointing to margin compression and rising costs. The bank has guided for elevated credit costs in H1FY26, with expected improvement only in the second half of the fiscal year.
Disclaimer: The above views are of the broker’s and not the author or the publication’s. Please make any and every investment decision after consulting your financial advisor.
