Reduce Equitas Small Finance Bank; target of Rs 100: Emkay Global Financial

Emkay Global Financial's research report on Equitas Small Finance Bank

Equitas SFB reported a 5% miss on PAT at Rs2bn/2% RoA (vs Emkay estimate of Rs2.1bn), mainly owing to higher staff cost and higher LLP (Rs843mn). Headline GNPA ratio inched up by 20bps QoQ to 2.5%, stalling the steady improving trend since Covid mainly due to higher slippages on account of floods in the Madurai division of Tamil Nadu (TN), particularly in the CV and MFI segments. However, the SFB expects to claw-back some NPAs as business normalizes during 4Q. Equitas expects credit/deposit growth to remain healthy, but we believe that the rising CoF coupled with the SFB’s planned moderation in LDR ratio to 85% could further decelerate margins.

Outlook

Factoring-in some growth moderation, margin softness, and elevated LLP amid rising stress levels in the system, we cut our earnings estimates for FY24-26 by 3-18% and lower our rating to REDUCE from ADD with a nudged-down TP of Rs100/share (from Rs107/share), implying valuation at 1.6x Dec-25E ABV.