Buy Equitas Small Finance; target of Rs 110: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance

In 1QFY24, Equitas Small Finance Bank (EQUITAS) reported 97% YoY growth in PAT to INR1.9b (9% beat). This was primarily driven by a 52% QoQ reduction in provisions. The business growth of EQUITAS was robust at 36% YoY growth in AUM amounting to INR296b. This growth was driven by strong traction across various segments of the bank. Housing finance posted a growth of 12% QoQ. Deposits sustained momentum with a 9% sequential growth. On the asset quality front, slippages increased along with modest recovery and upgrades, resulting in GNPA and NNPA ratios remaining stable at 2.8% and 1.2%, respectively. PCR improved 89bp to 57.8%. 31-90 DPD book remains stable at 3.24% in 1QFY24. We maintain our earnings estimate and project a RoA/RoE of 2.0%/15.7% for FY25E. We reiterate our BUY rating on the stock.

Outlook

On the asset quality front, GNPA/NNPA ratios remain stable. We maintain our earnings estimate and project RoA/RoE of 2.0%/15.7% for FY25E. We reiterate our BUY rating on the stock with a TP of INR110 (1.8x FY25E ABV).