Buy Equitas Small Finance Bank; target of Rs 105: Motilal Oswal

Motilal Oswal is bullish on Equitas Small Finance Bank recommended buy rating on the stock with a target price of Rs 105 in its research report dated June 23, 2023.

Broker Research

June 26, 2023 / 14:03 IST

Buy

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Motilal Oswal's research report on Equitas Small Finance Bank

EQUITASB reported strong profitability in FY23, with RoA expanding to 1.9% (avg. of 2.2% in 2HFY23). It was driven by steady margins, healthy loan growth and controlled credit costs. The bank focuses on building a diversified loan book, with small business loans (SBL), vehicle finance, microfinance (MFI) and housing finance being the key business segments. Loan growth was strong at 33% in FY23, and we estimate a robust 27% CAGR in loans over FY23-25. EQUITASB has made good progress in building a granular liability franchise, with a rising mix of retail deposits. The CASA mix is healthy at 42.3%. We expect deposit traction to remain strong even as the CASA mix declines further. It has demonstrated a strong improvement in asset quality, with X bucket collection efficiency improving to pre-Covid levels and GNPA/NNPA ratios moderating to 2.8%/1.2% as of 4QFY23. We expect asset quality ratios to improve further and expect PCR to improve to 70% by FY25 (over 1,400bp PCR improvement in FY23). We estimate EQUITASB to deliver FY25E RoA/RoE of 2.1%/16.7% and value it at INR105 (1.7x Mar’25E BV). Reiterate BUY.

Outlook

We estimate EQUITASB to deliver FY25E RoA/RoE of 2.1%/16.7% and value it at INR105 (1.7x Mar’25E BV).

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