Brokerage Motilal Oswal Financial Services Ltd (MOSL) has downgraded its recommendation on AU Small Finance Bank stock to ‘neutral’ from ‘buy’ earlier as it expects a decline in the company’s net interest margins in this fiscal as well as in earnings growth.

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Motilal Oswal has also revised its price target for the small finance bank to Rs 760 per share, implying a potential downside of around 4 percent from Monday’s closing price, as against earlier target of Rs 830 per share.

The brokerage remains watchful of margins of AU Small Finance Bank (AUSFB) and expects its net interest margin (NIM) to decline by 30 basis points (bps) on a yearly basis in 2023-24 fiscal.

It also expects AUSFB’s earnings growth to slow down to 28 percent annually during the financial year 2023-2025 period as against a compounded annual growth rate (CAGR) of 37 percent over the financial year 2018-2023 period.

However, Motilal Oswal mentioned that the business growth of AUSFB would remain robust. The company is expected to continue investing in technology and its cost-to-income ratio is expected at 62 percent in financial year 2024 and 59 percent in financial year 2025.

Shares of AU Small Finance Bank have given returns of more than 40 percent in the last two months. The brokerage mentioned that near-term growth opportunities are fairly priced in after recent outperformance.

The small finance bank is expected to deliver a return on assets (ROA) of 1.8-1.9 percent in financial year 2024/2025, according to Motilal Oswal.

Jaipur-based AU Small Finance Bank reported a 22.7 percent year-on-year growth in net profit to Rs 424.6 crore for the March quarter, its highest-ever quarterly profit, which was also higher than CNBC-TV18 poll estimate of Rs 398.8 crore.

Shares of AU Small Finance Bank ended 2 percent lower at Rs 775.45.