YES Securities Bullish on Equitas Small Finance Bank with Buy Rating and Target Price of Rs 120

Overview of YES Securities’ research report on Equitas Small Finance Bank

Equitas Small Finance Bank (SFB) has received a buy rating from YES Securities, with a target price of Rs 120. In their report dated October 21, 2023, YES Securities highlights that Equitas SFB’s performance exceeded expectations, with an 11% beat on Profit After Tax (PAT). The positive performance was driven by marginally higher Net Interest Income (NII), stable lending spread, higher other income (excluding treasury), consistent employee cost, and lower credit cost.

Despite a sharp increase in the Cost of Funds (CoF), resulting from a 45 bps quarter-on-quarter (qoq) rise in Time Deposits (TD) cost and a decline in Current Account and Savings Account (CASA) share, Equitas SFB managed to maintain a profitability level of 2% Return on Assets (RoA) and 15% Return on Equity (RoE). This was achieved without compromising on franchise investments and provision coverage, while sustaining a strong asset growth momentum. The Bank also saw a significant improvement of 40 basis points in Portfolio Yield, offsetting the impact of the CoF increase. Net Interest Margin (NIM) declined slightly due to a reduction in the Credit/Deposit (C/D) ratio, coupled with a 20% qoq growth in TDs. Furthermore, even without the Non-Performing Loan (NPL) sale of Rs 1.6 billion to the Asset Reconstruction Company (ARC), the Gross NPL level would have remained stable sequentially, thanks to restrained net slippages.

Outlook

With expectations of a compound annual growth rate (CAGR) of over 30% in earnings, YES Securities maintains a buy rating on Equitas SFB. The Bank’s valuation is still reasonably attractive, with a price-to-book value (P/ABV) of 1.8x and a price-to-earnings (P/E) ratio of 10x based on FY25E. YES Securities has increased the target price to Rs 120 for the next 12 months. It is noteworthy that Equitas SFB’s valuation is on par with other Small Finance Banks (SFBs) that have a less diversified and secured loan book, as well as a less developed deposit franchise.

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Equitas Small Finance Bank – Research Report – October 23, 2023 – YES Securities