AU Bank, Jana SFB, Equitas SFB, Ujjivan SFB, Capital SFB shares: Brokerage sees up to 74% upside; upgrades AU to 'Buy'

Systematix Institutional Equities believes the small finance bank (SFB) sector is nearing a key inflection point, citing provisional Q1 FY27 business updates and recent interactions with management teams. The domestic brokerage said growth remained resilient despite a seasonally weak quarter, while asset quality trends continued to improve.

"Growth remains robust and broad-based despite a seasonally weak quarter, asset quality trends continue to improve, coupled with steady margin with (a marginal negative bias) leading to PAT growth of 86 per cent YoY (supported by favourable base effect in Q1 FY26)," Systematix said.

"We see no visible signs of a slowdown in underlying credit demand despite concerns around an evolving El Nino and monsoon-related risks (a key monitorable). Reflecting the improving outlook, we raise our FY27/FY28 PAT estimates by 5 per cent/1 per cent on aggregate across our coverage universe, driven primarily by lower credit cost and higher loan growth assumptions," it added.

"We also roll forward the valuation base year in our excess return framework to FY27, resulting in target price upgrades of 7-17 per cent across our coverage universe," Systematix also said.

Following the review, the brokerage upgraded AU Small Finance Bank Ltd to 'Buy' from 'Hold'.

"With valuations remaining reasonable and return ratios poised for a meaningful recovery, we continue to advocate a basket approach to the sector, while acknowledging the potential for relative outperformance among select names, as we believe the SFB universe is entering a phase of broad-based rerating over the next 2-3 years," it stated.

Among its preferred picks, Systematix assigned a target price of Rs 1,220 to AU Bank, implying a potential upside of 17 per cent from its assessed market price.

The brokerage also maintained 'Buy' ratings on Jana Small Finance Bank, Equitas Small Finance Bank, Ujjivan Small Finance Bank and Capital Small Finance Bank.

For Jana SFB, it set a target price of Rs 590, indicating a potential upside of 34 per cent. Equitas SFB was assigned a target price of Rs 95, implying a 24 per cent upside.

For Ujjivan SFB, Systematix gave a target price of Rs 86, suggesting a potential upside of 43 per cent. Capital SFB emerged as the brokerage's most optimistic pick, with a target price of Rs 490, implying a potential upside of 74 per cent from its assessed market price.