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Motilal Oswal Report
Equitas Small Finance Bank Ltd. has been delivering consistent performance, with steady improvements in both asset quality and return ratios. The bank is well poised to report steady operating performance, backed by robust loan growth, healthy margins, and controlled credit costs.
The bank focuses on building a diversified loan book, with small business loans, vehicle finance, and housing finance being the key business segments.
Loan growth was strong at ~25% YoY in 9M FY24 and we estimate a 22% compound annual growth rate in loans over FY24-26E.
Equitas Small Finance Bank has made good progress in building a granular liability franchise, with a rising mix of retail deposits. Also, the credit-deposit ratio of the bank remains comfortable at 90% (versus ~99.5% in Q3 FY23). We expect deposit traction to remain strong, led by healthy growth in retail term deposits, while current account and savings account mix declines further.
Asset quality has improved steadily with gross/net-non performing asset ratios moderating to 2.5%/1.1% as of Q3 FY24. We expect asset quality ratios to improve further and expect provision coverage ratio to improve to 61% by FY26 from 56% currently.
We estimate Equitas SFB to deliver FY26E return on asset/return on equity of 2.0%/17.3% and value it at Rs 125 (1.9 times FY26E adjusted book value). Reiterate Buy.
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