4 Brokerages Are Recommending a “BUY” On This Small Finance Banking Stock

Post its quarterly results leading brokerage houses are recommending the stock of Equitas Small Finance Bank. Among the brokerages recommending a buy on the stock, include names like Axis Capital, Yes Securities, IIFL Securities and JM Financials.

Axis Capital: Maintain BUY with revised target price of Rs 60

Equitas SFB has all the ingredients for continued growth over a long period. "Focus is to grow asset base outside of Tamil Nadu (home city) which will deliver results over time. While its digitally accretion of liabilities continues, it is running pilots on the asset side to reduce TAT. Reduced guidance on credit costs (1.5% vs 2% earlier) provides comfort. We are still conservative and factor in 2% for FY23. Watch out for management transition. Maintain BUY with target price of Rs 60 (1.6x FY24E P/ABV)," the brokerage has said.

According to Axis Capital, credit costs were 170 bps (annualized) vs. 280 bps in Q1. Slippages at Rs 3.1 bn down 7% QoQ (on a like to like basis due to policy change), GNPA/ NNPA (3.91%/ 1.97% in Q2FY23) were tad lower than Q1. Restructured loans down at 9.76% (4.33% in Q2).

Yes Securities, Says "buy" with a price target of Rs 63

Yes Securities has a buy call Equitas Small Finance Bank stock with a price target of Rs 63.

Key monitorables in the coming quarters would be 1) any acceleration in growth, 2) trends in mobilization and pricing of Retail/HNI CASA and TDs, 3) outcomes from bank's focus on deepening the recently acquired liability relationships, 4) trajectory of NIM and 5) management transition. Calibration of NIM and cost/income expectations has led to mild cuts in earnings estimates. "We however retain BUY on favourable risk-reward with valuation at 1.2x FY24 P/ABV," Yes Securities has said.

IIFL Securities

IIFL Securities has Maintained a Buy call on the stock of Equitas Small Finance Bank with a price target of Rs 64, as valuations are favourable. "Overall outlook remains strong with management reiterating its 1.5% credit cost guidance for FY23 owing to asset quality normalisation and despite it reducing its loan growth guidance to 25% for FY23. Lower growth and higher opex would however mean that achievement of 2% RoA would be pushed to FY24. Given the expected return profile, valuation at 1.1x FY24 and the book value per share appears favourable," IIFL Securities has said.

JM Financials, says Buy Equitas Small Finance Bank with a target of Rs 65

According to JM Financials, in 2Q23, GNPL/NNPL improved to 3.9%/2.0% (-19bps/-18bps QoQ) and PCR increased to 50.5% (+200bps QoQ) which is in-line with management's target achieve 60% PCR in the long run on the back of strengthened provisioning norms. Total restructured loans stood at INR 9.9bn (4.3% of loans vs. 5.8% in 1Q23) of which INR 2.5bn (26% of restructured book) is currently NPA. Slippages from the restructured book stood at INR 1bn which resulted into elevated slippages of INR 3.1bn for the quarter (6.5% (annualised)). Management highlighted that they expect incremental stress to be limited which should aid in moderation of credit costs.

"We expect credit costs to moderate to 1.9%/1.5% by FY23E/FY24E. We recognize that margins could moderate from current levels in the near term, however, acceleration in loan growth, moderation of credit costs and operating leverage should help Equitas deliver an RoA of 1.7%/2.0% in FY23E/FY24E. Maintain BUY with a target price of Rs 65, valuing Equitas at 1.7x FY24E adj. BVPS.