Buy Equitas Small Finance Bank; target of Rs 70: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance Bank

Equitas SFB (EQUITASB) reported a net loss of INR2.24b vs our estimate of PAT of INR220m, driven by a sharp rise in provisions due to stress in MFI and changes in the provisioning policy. NII declined 2% YoY/5% QoQ to INR7.8b (in-line), amid declining yields due to shrinking MFI book and increased stress. NIM contracted 58bp QoQ to 6.55% (our est of 6.88%). Advances declined 4% QoQ (up 8.8% YoY) amid a sharp decline in the MFI portfolio (down 21.9% QoQ), which now stands at 9.4% of the portfolio. Meanwhile, deposits grew 18.3% YoY/3.0% QoQ, led by a sharp increase in CA deposits (up 92% YoY/36.7% QoQ). As a result, CASA ratio increased to 29.4%.

Outlook

We cut our earnings sharply by 86%/21% for FY26/27E and estimate FY27E RoA/ RoE at 1.1%/ 11.5%. Reiterate BUY with a TP of INR70 (1.3x FY27E ABV).