Buy Equitas Small Finance Bank; target of Rs 80: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance Bank

Equitas SFB (EQUITASB) reported 3QFY25 PAT of ~INR663m (-67% YoY; 17% miss to MOFSLe) amid lower other income, partially offset by slightly lower provisions. NII grew 4% YoY to INR8.18b (in line). Margins contracted ~30 bp QoQ to 7.39% in 3QFY25 (18bp contributed by a drop in the MFI portfolio). Business growth was healthy with advances growing 21% YoY/4.2% QoQ, while deposit growth stood modest at 25.8% YoY/2.2% QoQ. CASA mix moderated 193bp QoQ to 28.6%. Slippages were elevated, with fresh slippages increasing to INR5.9b vs INR5.1b. GNPA increased 2bp to 2.97%, while NNPA declined 1bp QoQ to 0.96%. PCR stood at 68.3%. We estimate FY26E RoA/RoE of 1.2%/11.4%. Reiterate BUY with a TP of INR80 (1.3x Sep’26E ABV).

Outlook

The MFI book is declining at a much faster rate and the bank will require 2-3 quarters to experience a normalized quarter of earnings. We estimate FY26E RoA/RoE of 1.2%/11.4%. Reiterate BUY with a TP of INR80 (1.3x Sep’26E ABV).