Buy Equitas Small Finance Bank; target of Rs 125: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance Bank

Equitas SFB (EQUITASB) reported in-line earnings for 4QFY24 at INR2.08b (up 9.3% YoY). However, adjusted for one-off items, the bank reported a PAT of INR2.33b. AUM growth was steady at 21% YoY/3% QoQ to INR 337b, driven by healthy traction in most segments (barring NBFC and new CV). The management expects credit growth to remain robust at 25% YoY in FY25.

Outlook

EQUITASB reported an in-line performance in 4QFY24, with strong AUM growth driven by healthy traction across segments. However, slippages increased but NIMs declined slightly. Deposit growth remained robust, fueled by healthy growth in retail term deposits, although the CASA mix deteriorated sharply over the past year. While margins are likely to witness a bit pressure due to rising CoF, the rise in disbursement yields and the nearing end of deposit re-pricing would help the bank limit the impact. Asset quality deteriorated further amid higher slippages and lower recoveries. The bank has guided for a moderation in the slippage run rate as collection efficiency improves. It expects credit cost at 1.25% in FY25. We raise our estimates by 4%/3% in FY25/FY26, translating into RoA/RoE of 2%/17.4% in FY26E. Maintain BUY with a TP of INR 125 (premised on 1.9x FY26E ABV).