AU Small Finance Bank at an 'interesting juncture'; Jefferies sees stock rising 19%

Shares of AU Small Finance Bank Ltd. have an upside potential of over 19%, according to a note from brokerage firm Jefferies on Monday, October 13.

The brokerage has initiated coverage on the stock with a "buy" rating and a price target of ₹910 per share.

It is of the view that the lender is at an interesting juncture, where the transition from a small finance bank to a universal bank can lower funding cost, lift fees and strengthen the brand to aid growth.

In August, the Reserve Bank of India (RBI) gave the lender its 'in-principle' approval to transition into a universal bank. AU Small Finance Bank had applied for the licence in September 2024.

The lender's profitability can improve from December 2025, led by a decline in deposit rates and credit costs, according to the Jefferies note.

AU Small Finance Bank's credit growth is likely to grow at a Compounded Annual Growth Rate (CAGR) of 22% over financial year 2025-2028, adding that it is the highest in its coverage. Return on Assets (RoA) is likely to rise to 1.7% by financial year 2027, Jefferies wrote in its note.

Jefferies has also in a factored capital raise in the next financial year, adding that growth and profitability will aid AU Small Finance Bank's valuation premium.

Of the 34 analysts that have coverage on the stock, 15 have a "buy" rating, 11 have a "hold" rating and eight have a "sell" rating.

Shares of AU Small Finance Bank were up 0.6% at ₹767.5 apiece around 12.10 pm. The stock has gained 33% in the last six months.

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