Why AU Small Finance Bank shares slumped post Q2 FY27 earnings
Citing relatively expensive valuations of 2.5 times the current market price-based adjusted book value, a domestic brokerage retained its 'Reduce' rating on the stock and cut its 12-month target price.
- Oct 26, 2026,
- Updated Oct 26, 2026 11:59 AM IST
AU Small Finance Bank Ltd shares declined 9.46 per cent to Rs 845.65 in Monday's trade after the company announced its second-quarter (Q2 FY27) earnings over the weekend.
Nuvama Institutional Equities said AU Small Finance Bank reported 25 per cent year-on-year (YoY) growth in assets under management (AUM), but its net interest margin (NIM) contracted 10 basis points (bps) quarter-on-quarter (QoQ) to 5.8 per cent due to a rise in the cost of funds (CoF).
Lower provisions helped the small finance lender report an in-line profit after tax (PAT) of Rs 860 crore, with return on assets (RoA) at 1.7 per cent, Nuvama stated. However, slippages rose to 3.3 per cent of loans due to seasonal stress in tractor finance. The brokerage also flagged a reduction in the specific provision coverage ratio (PCR) to around 60 per cent as "an irritant".
Nuvama added that the bank's mobilisation of low-cost FCNR deposits was relatively subdued in the absence of an offshore presence.
The brokerage said the rate hike cycle and rising rural stress could pose risks to margins and asset quality. Citing relatively expensive valuations of 2.5 times the current market price-based adjusted book value, it retained its 'Reduce' rating on the stock and cut its 12-month target price to Rs 925 from Rs 950, valuing the lender at 2.4 times its estimated September 2028 adjusted book value (ABV).
JM Financial also lowered its target price on AU Small Finance Bank to Rs 1,110 from Rs 1,165, while retaining its 'Buy' rating.
The brokerage said the bank continued to deliver industry-leading growth, with credit costs comfortably within its guidance. However, it also flagged the NIM trajectory in a rising-rate environment and the lender's reliance on insurance income as key variables to monitor.
JM Financial revised its target price while valuing the bank at 3 times its estimated FY28 price-to-book (P/B) value, against 3.1 times earlier.
Meanwhile, Motilal Oswal Financial Services Ltd (MOFSL) retained its 'Buy' rating on AU Small Finance Bank, with a target price of Rs 1,275, based on 3.4 times its estimated FY28 book value.
The brokerage largely retained its earnings estimates and projected a compound annual growth rate (CAGR) of 34 per cent in profit after tax (PAT) over FY26-FY28.
AU Small Finance Bank Ltd shares declined 9.46 per cent to Rs 845.65 in Monday's trade after the company announced its second-quarter (Q2 FY27) earnings over the weekend.
Nuvama Institutional Equities said AU Small Finance Bank reported 25 per cent year-on-year (YoY) growth in assets under management (AUM), but its net interest margin (NIM) contracted 10 basis points (bps) quarter-on-quarter (QoQ) to 5.8 per cent due to a rise in the cost of funds (CoF).
Lower provisions helped the small finance lender report an in-line profit after tax (PAT) of Rs 860 crore, with return on assets (RoA) at 1.7 per cent, Nuvama stated. However, slippages rose to 3.3 per cent of loans due to seasonal stress in tractor finance. The brokerage also flagged a reduction in the specific provision coverage ratio (PCR) to around 60 per cent as "an irritant".
Nuvama added that the bank's mobilisation of low-cost FCNR deposits was relatively subdued in the absence of an offshore presence.
The brokerage said the rate hike cycle and rising rural stress could pose risks to margins and asset quality. Citing relatively expensive valuations of 2.5 times the current market price-based adjusted book value, it retained its 'Reduce' rating on the stock and cut its 12-month target price to Rs 925 from Rs 950, valuing the lender at 2.4 times its estimated September 2028 adjusted book value (ABV).
JM Financial also lowered its target price on AU Small Finance Bank to Rs 1,110 from Rs 1,165, while retaining its 'Buy' rating.
The brokerage said the bank continued to deliver industry-leading growth, with credit costs comfortably within its guidance. However, it also flagged the NIM trajectory in a rising-rate environment and the lender's reliance on insurance income as key variables to monitor.
JM Financial revised its target price while valuing the bank at 3 times its estimated FY28 price-to-book (P/B) value, against 3.1 times earlier.
Meanwhile, Motilal Oswal Financial Services Ltd (MOFSL) retained its 'Buy' rating on AU Small Finance Bank, with a target price of Rs 1,275, based on 3.4 times its estimated FY28 book value.
The brokerage largely retained its earnings estimates and projected a compound annual growth rate (CAGR) of 34 per cent in profit after tax (PAT) over FY26-FY28.