Buy Equitas Small Finance Bank; target of Rs 115: Geojit Financial Services

Geojit Financial Services research report on Equitas Small Finance Bank

Equitas Small Finance Bank (ESFBL) is the second-largest SFB in India in terms of total advances as of FY24. ESFBL, located across 18 states and UTs, serves through 964 banking outlets. Net Advances grew by 20%YoY, aided by 24%YoY growth in the Small Business Loan and housing finance segment. Deposit growth advanced at 42.3%YoY, with the CASA account growing at 7.6%YoY. The CASA ratio stood at 32% (-10.3% sequentially). The Credit to Deposit (CD) ratio has improved from 103.4% to 86.98% in FY24. The management expect to stabilize CD ratio at 85% in the long run. Asset quality has improved marginally, GNPA and NNPA stood at 2.5% and 1.12% respectively. Net Interest Income grew by 21%YoY in FY24, dragged by lacklustre advance growth, NIM also contracted by 64bps YoY due to pressure from cost of deposits.

Outlook

The ongoing contraction in NIM is expected to persist for 2 more quarters as management endeavours to achieve the target CD ratio. Despite this, the bank's long-term outlook remains positive, buoyed by robust asset quality and deposit growth. Consequently, we reiterate our Buy rating with a target price of Rs.115, based on 1.7x FY26E BVPS.