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The market expects AU Small Finance Bank to do better than it ever has.
At today’s share price, buyers are assuming AU Small Finance Bank earns about 18.9% a year on the money invested in it, from here on. Over the last ten years it actually earned about 14.6% a year. So the share price only makes sense if the business improves on its own track record. If it simply carries on as before, buyers today have paid for something they will not get.
- How it is valued: Excess return — the correct lens for a bank.
- What the price assumes: 18.9% return on equity, against 14.6% the model takes from its own record.
- Ten-year record: Between FY2019 and FY2026, AU Small Finance Bank's revenue went from ₹3,411 crore to ₹21,614 crore — it compounded at about 30% a year over 7 years.
- Biggest swing factor: Loan growth. Main risk: Microfinance stress.
01From vehicle finance to a bank
AU Small Finance Bank, founded by Sanjay Agarwal in Jaipur, started as a vehicle and small-business lender and became one of the first small finance banks in 2017. It now offers savings accounts, credit cards, home loans and business banking.
In 2024 it merged with Fincare Small Finance Bank, adding microfinance and a southern presence, and it has applied to convert into a universal bank.
02What the market is assuming
Work backwards from today's share price and you can see what buyers are quietly taking for granted. Here is the return on equity that price implies for AU Small Finance Bank, next to what the model assumes from the company's own record.
The further apart these two numbers are, the bigger the bet a buyer at today's price is making.
03AU Small Finance Bank's record, in plain numbers
Between FY2019 and FY2026, AU Small Finance Bank's revenue went from ₹3,411 crore to ₹21,614 crore — it compounded at about 30% a year over 7 years. Net profit grew from ₹382 crore to ₹2,641 crore, about 32% a year — faster than revenue, so margins widened. In FY2026 it kept 12.2% of revenue as net profit — against a low of 11.2% in FY2019 and a high of 18.3% in FY2021. The latest year added 16.3% to revenue, well behind its own long-run pace.
Revenue and earnings per share in ₹, return on equity and leverage as ratios — all from the filed statements.
Revenue and net profit by year (₹ crore)
| Year | Revenue | Net profit | Margin |
|---|---|---|---|
| FY2019 | 3,411 | 382 | 11.2% |
| FY2020 | 4,992 | 675 | 13.5% |
| FY2021 | 6,402 | 1,171 | 18.3% |
| FY2022 | 6,915 | 1,130 | 16.3% |
| FY2023 | 9,240 | 1,428 | 15.5% |
| FY2024 | 12,301 | 1,535 | 12.5% |
| FY2025 | 18,590 | 2,106 | 11.3% |
| FY2026 | 21,614 | 2,641 | 12.2% |
04How AU Small Finance Bank gets valued — and why
Excess return — the correct lens for a bankA bank is not valued with a discounted cash flow. Deposits are its raw material and interest is operating income, so enterprise value means nothing here. It is valued on excess return instead — the profit it earns above the cost of the equity funding it.
05What decides AU Small Finance Bank's value
Loan growth
Fast growth across vehicle, business and home loans.
Deposit costs
Building low-cost deposits is key to margins.
Universal licence
Becoming a universal bank would widen its market.
Asset quality
Microfinance and cards add risk.
06What could go wrong
- Microfinance stress. Rural borrower stress can raise defaults.
- Funding costs. Small finance banks pay more for deposits.
- The premium. The price assumes high growth continues.
07What the full AU Small Finance Bank valuation shows
Sign in free to see the complete AU Small Finance Bank valuation
- ✓Fair value per share — from the excess-return model banks are valued on
- ✓The bank workpaper — book value, cost of equity and sustainable return, step by step
- ✓Bull, base and bear cases — and exactly which assumptions move between them
- ✓Peer comparison — against Federal Bank, IDFC First Bank and Bajaj Finance
- ✓Downloadable report — the full write-up, yours to keep
08Questions people ask about AU Small Finance Bank
What is a small finance bank?
A bank licensed to serve smaller borrowers, with rules on lending mix and loan sizes.
When did AU merge with Fincare?
The merger was completed in 2024.
Will AU become a universal bank?
It has applied to convert; a universal licence would remove small-finance-bank limits.
Is AU Small Finance Bank overvalued?
At ₹967 the market is pricing in roughly 18.9% sustained ROE, against the ~14.6% its own record supports. That is more than it has delivered, so the price is justified only if the business can hold a rate it has not previously sustained.
What is the intrinsic value of AU Small Finance Bank?
It is computed from the filed financial statements using the method that fits this business (excess return), with every assumption shown alongside the result. The per-share figure and the full working are in the report.
How much debt does AU Small Finance Bank carry?
Debt to equity stands at 0.72, against 0.46 at the start of the period — the balance sheet is a core input to the cost of capital used here.