AU Small Finance Bank shares fall over 7% amid margin concerns in Q2; here's what brokerages say

AU Small Finance Bank released its earnings for July-September quarter of FY27 on Saturday. AU Small Finance Bank share price today Shares of AU Small Finance Bank opened at Rs 884 and fell to an intra-day low of Rs 845.40, down 10.35 percent from Friday’s close of Rs 932.90, on the NSE, becoming the top loser on the Nifty Midcap 50 index. At time of writing the report at around 11.22 am, the stock was down 7.67 percent or Rs 71.30 to Rs 861.40 from the previous trading day close.

AU Small Finance Bank Q2FY27 results AU Small Finance Bank reported a 53 percent growth in net profit at Rs 858 crore for the second quarter ended September 30. The lender had earned a net profit of Rs 561 crore in the year-ago period. The bank’s total income rose to Rs 6,382 crore in the reporting quarter from Rs 5,224 crore in the same period a year ago. Interest income increased to Rs 5,612 crore as against Rs 4,511 crore in the corresponding second quarter of the previous year.

Net interest income of the bank improved to Rs 2,820 crore in the July-September quarter, from Rs 2,144 crore in the September quarter of 2025, registering a growth of 32 percent. Net interest margin increased to 5.8 percent from 5.5 percent at the end of September 2025. Asset quality of the bank also improved with gross non-performing assets (NPAs) growing to 1.99 percent of gross advances at the end of the September quarter 2026, as against 2.41 per cent a year ago.

Net NPAs or bad loan too moderated to 0.81 percent, as against 0.88 percent in the year-ago period. However, the Capital Adequacy Ratio of the bank slipped to 18.54 percent, compared with 18.78 percent at the end of September 2025. Brokerages on AU Small Finance Bank Kotak Institutional Equities gave 'Reduce' call for the stock with a target price of Rs 950 per share, while JPMorgan retained its 'Overweight' rating with a target price of Rs 1,165.

JM Financial, on the other hand, maintained its 'Buy' rating but cut its target price to Rs 1,110 from earlier Rs 1,165. Kotak Institutional Equities on AU Small Finance Bank: Reduce, Target Price Rs 950 Brokerage Kotak Institutional Equities retained its 'Reduce' rating on AU Small Finance Bank with a target price of Rs 950 per share. The brokerage said noted that the lender reported a 16 percent return on equity (RoE) and earnings growth of 50 percent YoY in 2QFY27, led by sharp decline in provisions and strong pre-provision operating profit (PPoP) growth.

Asset quality remained broadly stable, with the net non-performing loan ratio at 0.8 percent, slippages at 2.5 percent and credit costs at 1 percent. However, NIM declined 10 basis points on quarter-on-quarter (QoQ) basis. Kotak said AU Small Finance Bank remained well positioned to deliver strong RoE and growth over medium term. JPMorgan on AU Small Finance Bank: Overweight, Target Price Rs 1,165

JPMorgan maintained its 'Overweight' rating with a target price of Rs 1,165, highlighting the lender’s strong performance in the second quarter of FY27. On year-on-year basis, NII rose 32 percent YoY, PPoP rose by 25 percent and profit after tax (PAT) grew 53 percent. Gross advances growth accelerated to 27.9 percent YoY, while management remained confident in delivering 25 percent annual loan growth (2.5x of Nom GDP growth), according to the brokerage.

The bank's current account and savings account (CASA) ratio improved 70 bps QoQ to 29.5 percent, providing some support to its funding profile. However, JPMorgan warned that the NIM outlook remained challenging because only around 30 percent of the loan book carried floating interest rates. The brokerage stated a potential increase in deposit costs could weigh on margins, although improving CASA traction and a rising share of unsecured loans could provide a partial offset.

Gross slippages declined 69 bps YoY in Q2 but increased 24 bps QoQ to 2.62 percent, according to JPMorgan's calculations, which attributed the sequential rise to seasonality. Credit costs on assets declined 7 bps QoQ to 0.70 percent, with first-half FY27 credit costs at around 72 bps, JPMorgan said the lender remained on track to deliver ahead of its 90-bps guidance for FY27. JM Financial on AU Small Finance Bank: Buy, Target Price Cut to Rs 1,110

JM Financial maintained its 'Buy' rating on AU Small Finance Bank but lowered the target price to Rs 1,110 from Rs 1,165. The brokerage said AU Small Finance Bank reported a healthy Q2FY27, with PAT growing of 53 percent YoY, driven by in-line NII growth of 32 percent and a 25 percent YoY decline in provisions. The earnings figure was around 2 percent above its estimates. “Deposit growth was solid at 29% YoY/8% QoQ despite marginal FCNR(B) mobilisation led by 11% QoQ growth in CASA deposits,” it said, adding the Loan growth was also strong at 28 percent YoY and 7 percent QoQ, driven by commercial banking and vehicle financing, alongside a pickup in unsecured lending.

Reported NIM eased around 9 basis points QoQ to 5.8 percent, which management attributed to higher average investments and an extra day in the reporting period. Asset quality held stable. Gross and net slippages rose 24 and 18 bps QoQ, respectively, amid seasonal tractor-related billing, but improved 70 and 42 bps YoY. GNPA improved 11 bps QoQ, while NNPA increased 5 bps as the provision coverage ratio declined following an alignment of write-off policies.

“Management reiterated cross cycle credit cost of 90–100bps and remains watchful for any emerging stress. AU SFB continues to deliver industry-leading growth with credit cost comfortably within guidance; however, we think the NIM trajectory in a rising-rate environment and the bank’s high reliance on insurance income (14% of PBT versus ~5% for our banks coverage), amid the RBI’s consultation paper, are key variables to monitor,” the brokerage added.

The brokerage forecasts average return on assets (RoA) and RoE of 1.7 percent and 17 percent respectively, over FY27-FY29. It lowered its target price while valuing the bank at three times its estimated FY28 price-to-book value.