Buy Equitas Small Finance Bank; target of Rs 77: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance Bank

Equitas SFB (EQUITASB) reported 4QFY25 PAT of ~INR421m, down 37% QoQ and 43% below our est., due to lower other income and higher-thanexpected provisions. NII grew 5.5% YoY/1.3% QoQ to INR8.3b (in line). NIMs contracted by 26bp QoQ to 7.13% in 4QFY25, mainly due to a drop in the MFI portfolio. Advances growth was muted at 16.9% YoY/2.3% QoQ owing to a sharp decline in MFI portfolio (down 15.7% QoQ). Deposit growth was healthy at 19.3% YoY/5.8% QoQ, led by CASA deposit growth of 7.4% YoY/6.4% QoQ. CASA mix thus improved by 15bp QoQ to 28.8%. Slippages declined by 5.3% QoQ, although still elevated. Higher recovery and elevated write-offs led to 8bp QoQ decline in GNPA ratio to 2.89%, while NNPA ratio inched up 2bp QoQ to 0.98%. PCR declined 145bp QoQ to 66.8%.

Outlook

We cut our estimate by 27% for FY26E and estimate FY27E RoA/RoE of 1.5%/15.2%. Reiterate BUY with a TP of INR77 (1.3x FY27E ABV).