Goldman Sachs has maintained its “Buy” rating on AU Small Finance Bank Ltd., despite lowering its target price to Rs 796 from Rs 813. The bank is seen as an attractive “Growth at a Reasonable Price” play due to its robust earnings growth profile, which is expected to outpace its peers over the next few years. The brokerage firm believes that the current valuation presents an opportunity for investors, as the bank’s strong earnings growth prospects from FY2025-2027 will likely outperform the Bank Nifty index.
AU Small Finance Bank has underperformed the Bank Nifty index recently, primarily due to concerns over profitability amid macroeconomic challenges and concerns related to its microfinance and credit card portfolios. However, Goldman Sachs is optimistic that the bank’s current valuation is attractive, with a strong return on assets (ROA) and return on risk-weighted assets (RORWA) expected in FY2025. The brokerage firm also believes that if the bank secures a universal banking license, it could address regulatory concerns and strengthen investor confidence.
Goldman Sachs expects AU Small Finance Bank to start delivering strong growth in the second half of FY2026, as loan losses related to its microfinance and credit card portfolios peak. For FY2025-2027, the bank is forecasted to achieve 31% earnings growth, outperforming the 28% consensus estimate, with an average ROA of 1.6% and ROE of 15%. Overall, Goldman Sachs sees a strong risk-reward scenario for the bank, making it a good investment opportunity for investors.