AU Small Finance Bank Limited — Credit Ratings, 28-02-2025: Credit Rating

AU Small Finance Bank Limited's latest financial performance indicates resilience and room for growth. The bank reported a net profit of ₹1,602 crore for the first nine months of FY2025, showcasing an impressive year-over-year growth from ₹1,164 crore in the previous period. This translates to a promising earnings per share (EPS) of approximately ₹16.02.

Revenue stood at ₹13,559 crore, reflecting a strong year-over-year increase, no doubt driven by an expanding retail asset franchise and growing demand in various segments, including vehicle financing and micro lending. The bank's gross loan portfolio (GLP) has exhibited a compound annual growth rate (CAGR) of around 31% over the past six years, although this growth moderated to 17% annualized in 9M FY2025 due to some asset quality challenges.

Operational costs have seen a marginal uptick, which rose by roughly 10%, primarily influenced by mergers and higher employee expenses. However, the bank's capital adequacy ratio remains robust at 19.9%, ensuring ample financial cushion for future growth.

Investors should note that while asset quality has slightly deteriorated with gross NPAs at 2.31%, the bank's strategic focus on expanding and diversifying its portfolio is commendable. In light of stable earnings and an improving operational backdrop, a “buy” stance could be justified, particularly for long-term investors keen on capitalizing on AU's growth trajectory.