AU SFB shares jump 8% as focus shifts to prioritising growth; ICICI Sec ups target price

Shares of AU Small Finance Bank (AU SFB) rose 8 per cent in Monday’s trade, as improvements in asset quality are expected to sustain in the near term, with the lender now shifting focus to growth in the coming quarters.
ICICI Securities said the move stems from subsiding stress, especially in credit card and MFI, with credit cost moderating to 1.7 per cent in Q2FY26 -- lowest in last four quarters, and benefits of deposit rate rationalisation flowing in earlier than expected. 

The AU SFB stock rose 7.93 per cent to hit a high of Rs 856.70, taking its year-to-date rally to 49.48 per cent.

AU SFB reported 17 per cent YoY loan growth during Q2FY26, much lower than its pre-merger run-rate of over 20 per cent YoY. New branch addition of over 150 and manpower increase of 7,000 in H1FY26 would enable it to improve growth trajectory ahead, ICICI Securities said.

"While universal bank conversion would expand customer segment and markets, AUSFB highlighted that its focus area would continue to remain high-yielding mortgage and wheels. It now focuses on expanding distribution to pan-India with a special focus on southern states like Andhra Pradesh, Karnataka, Tamil Nadu, Telangana, and Uttar Pradesh / West Bengal," it said.

Given the management’s encouraging outlook on near-term NIM trajectory and credit cost, ICICI Securities has upgraded its earnings estimate by 7 per cent for FY26 and 2 per cent for FY27. The domestic brokerage  moderated its credit cost estimate and increase its NIM assumptions. 

"We upgrade AUFSB to BUY (Add earlier) and revise our target price to Rs 925 (from Rs 875), as we now assign a 3.25x PBV (earlier 3x) on Sep’26E BVPS. Management highlighted that ECL implementation would be neutral to positive given LGDs in wheels/SBL is much lower than the current provision coverage ratio," it said.

Going ahead, the management shall continue to drive its deposits growth journey by building a strong individual and retail franchise. In order to do so, AU SFB continued to prioritise its strategy of driving granular retail deposit growth through focused customer acquisition, tailored product offerings, increasing customer engagement and overall improved sales productivity. 

"AUSFB has a full product suite with cutting edge digital channels, catering to diverse needs of its deposit customers. These include various segmented CASA offerings, insurance and wealth solutions, credit card, unsecured loans and foreign exchange related products. Its well-structured distribution channels are scaling efficiently, enabling it to deepen customer
relationships and expanding its deposit base sustainably," ICICI Securities said. 

AUSFB is strategically targeting to accelerate growth in its top 20 cities and aims to add 70–80 new branches in FY26, mostly in top cities.