AU Small Finance Bank Limited

“AU Small Finance Bank is a genuine quality franchise — founder-led, scarce RBI license, process-driven underwriting, and a decade-plus reinvestment runway in India's underpenetrated credit market — but the Fincare merger was a capital misallocation that has compressed ROE to 12-14% while the stock trades at 4.3x book near its 52-week high, pricing in full recovery before it has materialized. There is no margin of safety at current levels; base-case 10-year CAGR is roughly 10-12%, insufficient for the risks of key-person dependency, a structurally thin liability franchise, and ongoing MFI credit normalization. The right action is to track for a 20-25% price correction that would restore an adequate margin of safety.”