ICICI Direct IPO report on Equitas Small Finance Bank
Equitas Small Finance Bank (ESFB) is a mass market focused small finance bank (SFB), providing banking products and services to unserved and underserved segment. It is the largest SFB in India in terms of number of banking outlets and second largest SFB in India in terms of AUM and total deposits as on FY19. As of June 30, 2020, the bank had 856 banking outlets and 322 ATMs spread across 17 states and union territories in India. ESFB has a diversified portfolio with advances growing at 34% CAGR from FY18-20 to Rs 13747 crore (Rs 14389 crore as on June 2020). During the same period, deposits grew at 39% CAGR to Rs 10788 crore (Rs 11787 crore as on June 2020). Asset quality has remained steady with GNPA ratio at 2.68% and NNPA ratio at 1.48% as on June 2020. Operationally, conversion into SFB led to rise in cost to income ratio (67.2% in FY20). Earnings came in at Rs 243.6 crore in FY20 and Rs 57.7 crore in Q1FY21.
Valuation and Outlook
ESFB had strong advances growth along with maintaining asset quality. Unserved and underserved customers as target offer a vast opportunity for business growth. We have a SUBSCRIBE recommendation on the stock. At Rs 33, the stock is available at ~1.2x Q1FY21 P/BV (post fresh issue) and at ~16.3x P/E at Q1FY21 PAT (annualised basis).
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