Dec 20, 2023
Rating: add; Equitas SFB – Steady improvement
Equitas Small Finance Bank reported 57% y/y earnings on the back of 24% y/y operating profit growth and 35% y-o-y decline in provisions resulting in RoA crossing 2% and RoE nearing 15%. Total stress pool declined with gross/net NPL ratios down 30/20 bps q/q. Growth momentum improved with loan growth implying business normalisation.
Retain ADD rating . NII growth of 20% y/y drove strong revenue performance, while operating expenses were up 16% y/y driven by employee additions. AUM growth was broad-based with all the key segments (SBL, MFI and vehicle finance) growing at 25-30% y/y, indicating management’s comfort in growing across the board.
Estimates indicate that 36% of the peak restructured book has slipped into NPA in the past 4 quarters. While slippages were higher than expected, the broader improvement in trend on delinquencies and net slippages give us comfort on asset quality improvement. While Covid posed a challenge for bank’s customer base, a low share of unsecured loans prevented a sharp deterioration in asset quality.
Higher focus on business growth should now help the bank report steady improvement in earnings.
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