Au Small Finance Bank‘s December-quarter results drew mixed reactions across brokerages, even as consensus emerged on stronger margins and cleaner asset quality.
Motilal Oswal retained a ‘Buy’ with a Rs 1,250 target, implying nearly 27% upside,e citing disciplined credit costs and accelerating loan growth. Axis Securities echoed optimism, while Nomura and Emkay Global turned cautious, flagging stretched valuations after the stock’s rally.
Motilal Oswal on AU Small Finance Bank: ‘Buy’
Motilal Oswal has a target price of Rs 1,250, implying an upside of about 27% from the current level. The brokerage said Au Small Finance Bank delivered an all-round performance in Q3 FY26, supported by strong loan growth, a sharp decline in credit costs, and a 25 basis point sequential expansion in net interest margins.
The firm said slippages declined 13% quarter-on-quarter and asset quality improved across microfinance and unsecured portfolios, while provisions were materially lower than estimates. Motilal Oswal said the bank reiterated full-year credit cost guidance of around 1% and continues to guide for loan growth of 22–25%, aided by favourable macro conditions and strong execution.
The brokerage added that earnings visibility has improved materially, with PAT growth supported by stable margins and easing stress in unsecured segments. Motilal Oswal said AU Small Finance Bank remains its preferred pick among mid-sized private banks.
Motilal Oswal said, “Asset quality stress is firmly behind and we expect the bank to deliver best-in-class earnings growth over the coming years.”
Axis Securities on AU Small Finance Bank: ‘Buy’
Axis Securities has set a target price of Rs 1,160, indicating an upside of nearly 18%. The brokerage said margin expansion in Q3 FY26 was driven by a sharp reduction in cost of funds, CRR cut benefits, and lower excess liquidity, which more than offset mild pressure on asset yields.
Axis Securities said credit costs moderated sharply on the back of lower slippages and improving collection efficiency in the microfinance portfolio, supported by higher CGFMU coverage. The brokerage noted that credit card slippages have also normalised, and management expects these trends to remain stable going forward.
The firm expects net interest margins to expand further over FY27–FY28 as term deposit repricing continues and savings account rates are optimised. Axis Securities said the bank is positioned to deliver steady improvement in RoA and RoE over the medium term.
Axis Securities said, “With unsecured stress turning the corner, we expect credit costs to decline meaningfully into FY27 and beyond.”
JM Financial on AU Small Finance Bank: ADD
JM Financial has a target price of Rs 1,060, implying an upside of roughly 8%. The brokerage said AU Small Finance Bank reported strong Q3 FY26 numbers, driven by margin expansion and sharp moderation in credit costs, while loan growth remained healthy at 24% year-on-year.
JM Financial said net interest margins expanded by 25 basis points sequentially, aided by a 22 basis point reduction in cost of funds, while asset yields softened marginally due to portfolio mix changes. The brokerage added that operating expenses remained elevated due to branch expansion and investments in manpower and technology.
The firm said asset quality trends were the strongest part of the quarter, with credit cost falling to 0.78% of average assets and slippages declining sharply. JM Financial expects average RoA and RoE of around 1.7% and 17% over FY27–FY28.
JM Financial said, “The quarter reinforces the trend of risk normalisation and improving earnings visibility.”
Nomura on AU Small Finance Bank: ‘Neutral’
Nomura has a target price of Rs 930, implying a downside of about 6%. The brokerage said AU Small Finance Bank delivered strong Q3 FY26 results with PAT beating estimates, supported by lower credit costs and better-than-expected margin expansion.
Nomura said net interest margins rose by 26 basis points sequentially, aided by deposit repricing and CRR cut benefits, while credit costs moderated sharply across unsecured retail segments. However, the brokerage flagged elevated operating expenses and said near-term growth investments continue to weigh on core operating profit.
The firm believes current valuation levels adequately capture the improving outlook and maintained a Neutral stance despite raising earnings estimates.
Nomura said, “Valuations fairly reflect the improving outlook, despite better growth and margin visibility.”
Elara Securities on AU Small Finance Bank: ‘Reduce’
Elara Securities has set a target price of Rs 955, indicating a downside of around 3%. The brokerage said Q3 FY26 performance had stronger undertones with better revenue momentum and curtailed credit costs, but added that the recent stock rally has priced in most positives.
Elara said net interest margins improved to about 5.7%, driven by lower funding costs, while slippages moderated across segments. However, the brokerage remains cautious due to volatility seen in asset quality trends over recent quarters and elevated operating expenses.
The firm said sustained momentum will be required for further re-rating, and current risk-reward remains unfavourable.
Elara Securities said, “Most positives appear priced in, leaving limited room for disappointment.”
Emkay Global on AU Small Finance Bank: ‘Reduce’
Emkay Global has a target price of Rs 875, implying a downside of nearly 11%. The brokerage said AU Small Finance Bank bounced back in Q3 FY26 with improved growth and margins, but raised concerns around cost-to-income ratio and declining specific provision coverage.
Emkay said while asset quality trends are improving and slippages have moderated, the reduction in PCR to about 62% is a point of discomfort, especially ahead of ECL implementation. The brokerage added that the bank’s transition towards a retail-heavy universal bank structure could keep operational costs elevated.
Emkay believes valuations are running ahead of fundamentals and retained a cautious stance.
Emkay Global said, “Managing operational costs will be key to sustaining the recent momentum.”
Yes Securities on AU Small Finance Bank: ‘Add’
Yes Securities has a target price of Rs 1,070, which translates into an upside of about 9%. The brokerage said AU Small Finance Bank delivered a strong operational quarter marked by lower slippages, reduced credit costs, and a meaningful improvement in net interest margins.
Yes Securities said credit cost declined sharply to 19 basis points in Q3 FY26 from 30 basis points in the previous quarter, largely led by improvement in the microfinance and credit card segments. The brokerage added that collection efficiency in non-overdue MFI loans improved to 99.3% and the SMA pool reduced to 1.9%.
The firm expects margins to expand further in the near term, supported by deposit repricing and optimisation of savings account rates. However, YES Securities cautioned that valuations have risen to elevated levels following a sharp rally, limiting near-term re-rating potential.
Yes Securities said, “While operating performance remains strong, elevated valuation leaves limited room for re-rating in the near term.”
Conclusion
Brokerage reactions to AU Small Finance Bank’s Q3 FY26 results point to clear agreement on improving margins, lower credit costs, and stabilising asset quality. However, sharp divergence in valuation comfort has led to a wide spread in target prices. While bullish brokerages see earnings momentum sustaining over the next few years, cautious houses believe much of the recovery is already priced in.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.