Buy Equitas Small Finance Bank; target of Rs 120: YES Securities

YES Securities' research report on Equitas Small Finance Bank

Equitas SFB delivered 11% beat on PAT, which was driven by marginally higher NII (stable lending spread), higher other income (beat ex. of treasury), flattish employee cost and lower credit cost (moderate net slippages even adj. for ARC sale). Importantly, the Bank maintained its profitability of 2% RoA/15% RoE notwithstanding the sharp uptick in CoF (TD cost up 45 bps qoq + decline in CASA share), and without compromising on franchise investments and provision coverage, while sustaining the strong pervasive asset growth momentum. The pleasant surprise was a significant 40 bps improvement in Portfolio Yield which offset the impact of CoF increase. NIM declined on reduction in C/D ratio (from 100% to 93%) with TDs growing by 20% qoq. Even without the NPL sale of Rs1.6bn to ARC, the GNPL level would have been stable sequentially owing to restrained net slippages.

Outlook

Thus, expect earnings CAGR of 30%+ over the aforesaid period. With valuation still palatable (1.8x P/ABV and 10x P/E on FY25E), we maintain BUY rating with an increased 12m PT of Rs120. Notably, Equitas SFB’s valuation is at par with other SFBs having much less diversified & secured loan book and a less developed deposits franchise.