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

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26 Aug, 2025 12:21

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Equitas SFB continues to report subdued credit growth at 20% YoY mainly due to slower growth in the new CV and NBFC segments, which coupled with elevated funding cost has led to further deterioration in NIM by 20bps QoQ to 8.2%. However, higher other income led to a 4% beat on PAT at Rs2.1bn/1.9% RoA. The bank has made one-off additional provisions (Rs110mn) due to recognition of co-borrower as NPA, and ESOPs (Rs220mn), while reverse retirement provisions are to the tune of Rs80mn, adjusted for which PAT would have been higher at Rs2.3bn/RoA at 2.15%. Headline GNPA ratio deteriorated further by 8bps QoQ to 2.6%, mainly due to stress in the MFI/MSE book, while PCR remains sub-par at 56% and thus remains a concern.

Factoring-in the slower growth, some softness in margins, and the higher LLP partly to shore-up PCR, we expect the bank to report slight moderation in RoA to 1.8% over FY25-27E from 2% in FY24, while logging ROE of ~14-16%. We retain REDUCE, with a TP of Rs100/sh, implying valuation of 1.5x FY26E ABV.

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