ICICI Securities Assigns Buy To Small Cap Banking Stock, Sees Robust Gains, Target Price Rs 70

Stock Outlook & Returns

The Equitas SFB's stock on NSE last traded at Rs 58.35/share, 1.27% down compared to its previous close of Rs 59.10/share. The stock on 13 December 2021 recorded its 52 week high level at Rs 63.80, and 52 week low level on 17 June 2022 at Rs 37.45, respectively.
It was listed on 2 November 2020 and since its listing, it has delivered positive returns of 77.9%. It has given 2.1% positive returns in the last 1 week. It has given 13.96% positive returns in the last 1 month and 23.62% in the last 3 months, respectively. However, in a year, it has fallen by 4.19%. 

Credit growth recovery coupled with lower credit cost going forward likely to drive ~2% RoA by FY24E

According to the brokerage, in its >5 year-journey as a 'small finance bank', including 2 covid-impacted years, Equitas SFB remained committed to building a scalable, sustainable and stable franchise with focus on granularity and geographic diversification. While the journey was temporarily disrupted by the pandemic, management's successful execution of business strategies is reflected in: 1) share of the secured book increasing to 81% in FY22 (vs 66% in FY18), 2) CASA ratio at 48% in Q2FY23, 3) average RoA at 1.4% during FY20-FY22 on quarterly basis, and 4) calibrated lending growth (16% CAGR during FY21-FY22). Despite high exposure to the self employed small-ticket segment, Equitas SFB has been able to contain its peak GNPL to <5% and maintain steady provision coverage of ~50% during the entire covid phase.

Valuation and Risks - Buy for a target price of Rs 70/share

With abating asset quality challenges and sustained economic recovery, Equitas SFB started FY23 on a strong footing. Notably, credit growth revived to 20% YoY in Q2FY23 and management expects the momentum to further improve during H2FY23. Overall, it estimates >25% YoY credit growth in the current fiscal. During Q2FY23, it made its highest-ever disbursals (Rs38.5bn) spread across segments with no single segment contributing >30% of the total. Maintain BUY based on 1.75x Sep'23E P/BV.

Key risks: a) Likely change in top management, and b) stress unfolding higher than expected given the elevated restructured book at 5% of loans.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.