AUBANK

STOCK REVIEW

profitability, post merger in Apr’24, was impacted due to elevated credit cost on the back of higher-thanexpected delinquencies in its credit card (CC)/microfinance (MFI) portfolios and NIM compression. While near-term challenges persist, we believe RoA at 1.5%, as on Dec’24, has bottomed out and shall witness a steady uptick Q1FY26E onwards. Key drivers for RoA expansion would be: 1) normalisation in MFI credit cost to ~3% (9MFY25 credit cost at 5.41%); 2) course correction in CC business to pare credit costs and align with industry average of 6–7%; and 3) a falling rate cycle auguring well for cyclical recovery in NIM (~64% of assets are fixed price). On balance, we expect RoA improving ~30bps to 1.8% by FY27E. Outlook With likely improvement in profitability and the recent stock price correction (~15% in past 1–3 months), we upgrade the stock to BUY (Hold earlier) with a revised TP of INR 725 (earlier INR 625), based on ~3x Sep’25E BVPS (earlier: 2.5x). The stock is currently trading at 2x/1.7x FY26E/FY27E BVPS.