AU Small Finance Bank shares surge 10% to hit record high after multiple upgrades

Shares of AU Small Finance Bank Ltd. surged as much as 10% to a record high on Monday, October 20, driven by strong buying interest and heavy volumes. About 73 lakh shares of the company changed hands during the day, sharply higher than the 20-day average of 7 lakh shares.

The rally follows robust second-quarter earnings and improving asset quality, which analysts expect to sustain in the near term. The lender has now shifted its focus towards accelerating growth in the coming quarters.

Global brokerage Citi upgraded AU Small Finance Bank to 'Buy' and raised its price target to ₹990. The brokerage said that earnings surpassed expectations, with the bank reporting return on assets (RoA) of 1.37%, led by a 5 basis point (bps) expansion in NIMs, 24% quarter-on-quarter (QoQ) growth in fee income, and contained credit costs at 1.7% (vs 1.97% QoQ).

Microfinance SMA levels improved to 2.9% (vs 4.3% QoQ), while forward flows across cards, mortgages, and commercial banking also declined.

The management indicated a neutral-to-positive impact from the ECL transition and reaffirmed its growth agenda, leveraging its pan-India distribution to capture market share from a low base.

Citi expects NIMs to improve further, aided by yield repricing and lower savings and term deposit rates, and raised FY26E-FY28E earnings estimates by 4%.

Nomura also upgraded the stock to 'Neutral' with a price target of ₹750, citing strong all-round Q2 performance and raising its FY26-FY28F EPS estimates by 8-12%.

The brokerage mentioned robust delivery on NIMs, fee income, and credit costs, alongside continued asset quality improvement. Nomura expects AU Small Finance Bank to deliver average RoA/RoE of 1.6%/16% and EPS CAGR of 29% over FY26-28F.

Jefferies, which maintains a 'Buy' rating, raised its price target to ₹940. The bank reported Q2 profit of ₹560 crore, down 2% year-on-year but ahead of estimates due to higher margins and lower credit costs.

AUM grew 17% YoY and could accelerate to 20% as unsecured loan growth picks up. Jefferies said the improvement in credit quality provides room for higher growth and that the transition to a universal banking platform presents a medium-term opportunity. It expects RoA to improve to 1.7% in FY27E.

Morgan Stanley retained its 'Overweight' rating and raised its price target to ₹1,175. It said Q2FY26 results surprised positively on both NIMs and asset quality, increasing conviction in EPS growth estimates of 40% for FY27 and 23% for FY28.

The brokerage cited strong improvement in microfinance asset quality, a better NIM starting point with expected rate cuts, 28% YoY growth in secured loans, and reduced drag from unsecured loans as key positives.

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