AU Small Finance Bank - Multiple RoA Expansion Levers Identified, Eyeing RoA Of 1.8% By FY27E: Axis Securities

"NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Axis Securities Report.AU Small Finance Bank Ltd. has been facing headwinds on margins owing to the portfolio mix shifting towards lower-yielding/return on asset products along with additional pressure from cost of fund headwinds. The management expects near-term pressure on margins to persist. With the focus now shifting towards enhancing the mix of high-yield/RoA products in the portfolio and with additional support from the merger with micro finance/gold loans forming part of the portfolio, along with expectations of a rate cut benefiting AU Small Finance Bank's largely fixed book, margins are anticipated to receive support. AU Small Finance Bank aspires to scale back RoA of 1.8%, driven by improving margins, gradually improving cost ratios, and strengthening the fee income profile. We believe the ROA improvement trajectory will be slower and expect AU Small Finance Bank to deliver a RoA of 1.7% by FY26E. Cost-income ratio reduction would be a key factor in this RoA improvement. The stock has corrected sharply post-Q3 FY24 results, largely owing to margin headwinds and pressures on asset quality and credit costs in the credit card portfolio. We believe the current risk-reward is favorable. We reiterate our Buy recommendation on the stock with a revised target price of Rs 680/share (2.7 times FY26E adjusted book value), implying an upside of 19% from the current market price..Click on the attachment to read the full report:.AU Small Finance Bank - Laying Strong Foundation Of A Forever Bank: Motilal Oswal.DISCLAIMERThis report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit..Users have no license to copy, modify, or distribute the content without permission of the Original Owner."

AU Small Finance Bank - Multiple RoA Expansion Levers Identified, Eyeing RoA Of 1.8% By FY27E: Axis Securities

Post the merger with Fincare, AU Small Finance Bank will look to cap the MFI book at ~10% of the overall portfolio.

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AU Small Finance Bank - Multiple RoA Expansion Levers Identified, Eyeing RoA Of 1.8% By FY27E: Axis Securities

Post the merger with Fincare, AU Small Finance Bank will look to cap the MFI book at ~10% of the overall portfolio.

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