Buy This Private Sector Bank Stock For A Target Price Of Rs 52 To Get 20% Return

Geojit Financial has given buy rating to the private sector bank stock Equitas Small Finance Bank Ltd for a target price of Rs 50 with a potential return of 20% in 12 months. Loan book has witnessed a CAGR of 18% during FY19-22 through 25% growth in non-micro finance segments. With recovering economic activities, we anticipate a 20% growth over FY22-FY24E.

Equitas Small Finance Bank Ltd Stock Outlook

The current market price of the stock is Rs 46 apiece. It gained 0.88% intraday. According to Geojit Financials, if you buy the stock at its current market price, it has the potential to surge to Rs 52 apiece within a period of 12 months offering a return of 20%.

Equitas Small Finance Bank Ltd Return

The stock has fallen 22% in the 1-year period. It has given a return of 6% in 3 months, 3% in 1 month, and 5% in 1 week.

Equitas Small Finance Bank Ltd well diversified loan book

ESFBL has been able to diversify its loan portfolio by reducing dependence on microfinance business as compared to other SFBs. Bank is targeting to reduce the exposure in micro-finance business to 15% which currently stands at 19%. We expect advances to grow at a CAGR of 20% during FY22- 24 with micro finance growing at 13% and non-micro finance segment growing at 21%.

Equitas Small Finance Bank Ltd Market Capitalization

The current market capitalization of the stock is Rs 5,765.78 crore.

Equitas Small Finance Bank Ltd advancing CASA mix and liability profile

ESFBL has a strong liability profile with CASA ratio of 52% and term deposit inclining to safer retail deposits (Retail term deposit at 78% of total term deposit). During FY22, the bank has registered 15.6% YoY growth in total deposits with savings deposit growing at 78.3% YoY and current deposit at 48.5%, while term deposit registered a de-growth of 15.0%.

Equitas Small Finance Bank Ltd strong capital base and improving asset quality

The bank is well capitalized as capital adequacy ratio stood at 21.9% as on FY22 which is more than the RBI prescribed limit of 15% for small finance banks.

Equitas Small Finance Bank Ltd Valuation

According to Geojit Financial, "We believe that the sector exhibits a strong recovery from Covid-19 impacts and the same is evident in improving collections and disbursement. We expect advances to grow at a CAGR of 20% over FY22-24.The bank is expected to close the reverse merger with it's parent company by March 23. Net Interest Income and PAT is expected to grow at 18% and 53% CAGR over FY22-FY24E; powered by better loan growth, lower cost of funds. The stock is currently trading at 1yr fwd P/B of 1.1x compared to its 3yr average P/B of 1.6x. With improving business prospect, we expect decent improvement in its valuation going forward. We therefore initiate coverage with a BUY rating by valuing at 1.35x FY24E Adj P/B with a target of Rs 52."

Equitas Small Finance Bank Ltd About

Equitas Small Finance Bank (ESFBL) is the second-largest SFB in India in terms of total advances as on FY22. Locating across 17 states and UTs, ESFBL serves through 869 banking outlets.

Disclaimer

The above stock was picked from the brokerage report of Geojit Financial. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.