Our target price for AUBANK is Rs850. We value the stock using a two-stage Gordon Growth Model, with our key assumptions being: a cost of equity of 13%, normalized RoE of 15.8%, growth rate during stage one of 23%, and a steady state growth rate of 4%. This gives us a target multiple of 3.0x 9MFY27E adjusted BVPS (adjusted for net NPLs).

Key upside risks that could mean the AUBANK stock trades above our target price include: fee income acceleration; NIM surprise; and Universal Banking license (if regulations allow).

Key downside risks that could mean the AUBANK stock trades below our target price include: slower-than-expected build-up of deposit franchise; margin compression due to higher cost of funds; rise in NPA or credit costs; and any negative surprises from proposed merger.

Any of these risk factors could cause the stock to deviate from our target price.