Reduce Equitas Small Finance Bank; target of Rs 55: Emkay Global Financial

Emkay Global Financial' research report on Equitas Small Finance Bank

Equitas continued to post dismal results, as it slipped into loss of Rs2.2bn, mainly due to persistent higher MFI/non-MFI stress and accelerated standard provisions on MFI loans (Rs1.9bn, mainly to ease provisioning in 9MFY26). Overall gross slippages were higher at Rs6.6bn/8.3% of loans, mainly due to the impact of adverse ordinances in the states of Karnataka and Tamil Nadu impacting collections in MFI and even spilling over into the SBL portfolio (below Rs0.7mn). However, the bank resorted to higher write-offs to keep GNPA ratio below 3% (at 2.9%), to qualify for a Universal Bank license. The management guides for mid-teen credit growth in FY26, and expects MFI stress to ease by 4Q. This, coupled with utilization of standard provisions, should help the bank remain profitable for the full FY26E.

Outlook

Factoring in the sharp cut in earnings and continued stress, we retain REDUCE with an 8% cut in TP to Rs55, valuing the bank at 1x Jun-27E ABV. The bank plans to raise Tier I (equity capital) of Rs12.5bn to shore up its capital buffer (Tier I at 17.2%).