Equitas Small Finance Bank — Navigating Through Uncertainty, Motilal Oswal Retains 'Buy' On The Stock

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Motilal Oswal Report

Equitas Small Finance Bank Ltd. has demonstrated healthy growth, achieving a 26% CAGR in its loan book and a 38% CAGR in deposits over FY22-24. Credit-deposit ratio has thus eased from 102% in FY23 to 87% in Q3 FY25. Although ongoing stress in the micro finance segment has impacted profitability, the bank's MFI exposure has declined to ~14% (from 28% five years ago).

In order to reduce cyclicality in the business, the bank aims to further bring down the MFI mix over the coming years. Equitas Small Finance Bank has hired ~1,000 employees to boost CE, which has affected cost ratios, which we estimate will ease gradually over the coming years.

The stock has corrected 43% since January 2024 and now trades at 1.0x Sep’26E adjusted book value. The bank’s sustained growth momentum with an estimated loan CAGR of 22% and a gradual recovery in profitability with RoA of 1.5% by FY27E will support stock performance in the medium term, especially as MFI segment regains stability.

We retain our Buy rating on the stock with a revised target price of Rs 77 (1.3x Sep’26E ABV).

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