Buy Equitas Small Finance; target of Rs 115: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance

Equitas Small Finance Bank (EQUITASB) reported in-line earnings for 2QFY24 at INR1.98b (up 70% YoY/3.6% QoQ), because of healthy NII growth (up 26% YoY/3% QoQ) and controlled provisions (in line) aided by reversal of INR230m on account of the sale to ARC. AUM growth was steady at 37% YoY/ 5.5% to INR312b, driven by healthy traction across most of the segments (barring MSE finance). Management expects credit growth to remain robust at 25-30%. Deposits growth was robust at 42% YoY/ 11% QoQ, led by faster growth in TDs, while CASA mix deteriorated 480bp QoQ to 33.6%. The cost of funds thus rose 27bp QoQ to 7.2% leading to 33bp drop in NIMs to 8.4% (in line). Slippages were elevated mainly due to higher slippages from the CV segment, while healthy recoveries and ARC sale enabled 48bp/21bp QoQ decline in GNPA/NNPA ratio to 2.3%/1.0%. PCR was largely stable at 57.7%.

Outlook

We raise our FY25E earnings by ~5% and estimate EQUITASB to deliver an FY25E RoA/RoE of 2.0%/16%. Maintain BUY with a TP of INR115 (premised on 1.9x FY25E BV).