Buy Equitas Small Finance; target of Rs 125: Motilal Oswal

Motilal Oswal's research report on Equitas Small Finance

Equitas Small Finance Bank (EQUITASB) reported in-line earnings for 3QFY24 at INR2b (up 18.7% YoY). PPoP grew 29% YoY (up 9% QoQ, in line), led by high other income. AUM growth was steady at 32% YoY/5% QoQ to INR328b, driven by healthy traction in most of the segments (barring NBFC). The management expects credit growth to remain robust at 25-28% in FY24. Deposit growth was robust at 38% YoY/5% QoQ, led by faster growth in TDs. The CASA mix moderated 85bp QoQ to 32.7%. The cost of funds, thus, rose 15bp QoQ to 7.4%, leading to a 6bp drop in NIMs to 8.37%. Slippages were elevated mainly due to higher slippages from vehicle finance and micro finance. GNPA/NNPA ratios increased 26bp/16bp QoQ to 2.53%/1.13%. PCR declined slightly to 56%.

Outlook

We maintain our FY24E/FY25E EPS and estimate FY25 RoA/RoE of 1.9%/15.3%. Maintain BUY with a TP of INR125 (2.0x Sep’25E ABV).

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