Stock To Buy: Top Brokerage Upgrades Target Price For This Small Finance Bank, PAT Grew To Rs. 1.16bn

Top brokerage firm Emkay Global has given a buy rating to the stock of Equitas Small Finance Bank. The bank reported a slight beat on PAT at Rs. 1.16bn mainly on lower provisions, albeit partly offset by higher staff expenses as the bank accelerated recruitment to drive business growth.

Stock To Buy: Target Price

The Current Market Price (CMP) of Equitas Small Finance Bank is around Rs. 51. Emkay Global has estimated a Target Price for the stock at Rs. 65. This stock has the potential to give a 27.30% return, in the upcoming 1 year. It is a mid-cap stock with a market capitalization of around Rs. 6,143 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 51
Target Price	Rs. 65
Potential Upside	27.30%
52-week high share price	Rs. 68.20
52-week low share price	Rs. 37.45

Financials

Bank clocked strong credit growth at 22% YoY/7% QoQ, chiefly led by growth in small business and vehicle-finance loans. But the bank moderated its credit growth guidance to 25% from 30%, as growth momentum from non-TN states has been relatively slower than expected due to executional hurdles. Despite elevated slippages due to flow from RSA/grossing-up of inter-quarter NPAs, GNPA ratio fell 19bps QoQ to 3.9%, which is a key upside. But, slower CASA growth leading to decline in CASA ratio and moderation in credit growth guidance.

Stock Valuation

Giving a buy rating, Emkay Global mentioned, "Factoring-in some moderation in growth/margin and higher staff cost, we trim our earnings for FY23/24E by 8%/6%. However, we expect the bank to see gradual improvement in RoE to 10-16% over FY23-25E, aided by better RoA/leverage. We retain BUY on ESFB, with target price of Rs. 65 (earlier Rs62), now based on 1.5x Sep-24E ABV. Effectively, the target price of Equitas Holdings too has been revised up, to Rs. 142, while the rating is retained at Buy."

Healthy credit growth

Healthy credit growth has been noted for the bank, but rising CoF and portfolio shift towards secured loans could exert cash pressure on NIMs. Equitas SFB reported healthy credit growth at 22% YoY/7% QoQ, led by strong growth in the SBL and Vehicle Loan segments. MFI growth remains relatively moderate, while the bank retains a cautious stance on the space. Deposit growth was healthy at 20% YoY/7% QoQ, but increasing CASA cannibalization led to moderation in CASA ratio to 48%.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. 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.