scorecardresearchEquitas SFB: Brokerages remain positive after robust Q3 earnings, raise

Equitas SFB: Brokerages remain positive after robust Q3 earnings, raise target price

Updated: 15 Feb 2023, 10:47 AM IST
TL;DR.

Domestic brokerage firm Axis Securities has retained its ‘buy’ rating on the stock and raised the target price to 70 per share from 60 earlier. ICICI Securities has also maintained its ‘buy’ rating on the stock with an unchanged target price of 70 apiece.

Equitas Small Finance Bank is engaged in the retail banking business with a focus on microfinance, commercial vehicle finance and home finance.

Equitas Small Finance Bank is engaged in the retail banking business with a focus on microfinance, commercial vehicle finance and home finance.

Domestic brokerage firms have maintained their bullish outlook on Equitas Small Finance Bank, following the company's strong performance in the December quarter. On February 8, the bank posted its highest-ever quarterly net profit of 170 crore in Q3FY23, a growth of 57% YoY and 46.55% QoQ.

The bank has performed well across all key performance indicators, delivering sustainable loan and deposit growth, stable margins, and improving asset quality.

During the October-December quarter, the net interest income of the lender grew to 647 crore, compared to 541 crore in a similar quarter last year. The Pre-Provisioning Operating Profit (PPoP) for Q3FY23 increased by 24% YoY to Rs. 279 crore as against Rs. 225 crore in Q3FY22.

The bank recorded its highest-ever disbursement during the third quarter of FY23 at Rs. 4,797 crore, an increase of 68% YoY. The bank’s flagship product SBL clocked a YoY disbursement growth of 73%.

Advances as of Q3 FY23 were at 24,915 crore, up 27% from the same quarter a year ago.

On the asset quality side, the gross non-performing assets of the bank fell to 3.46%, a drop of 93 basis points from 4.39% in the third quarter of FY22, while the net NPA ratio came in at 1.73%, down 65 bps YoY.

On the key ratio front, the net interest margin remained healthy during the quarter at 9.01%, while the cost-to-income ratio stands at 63.95% as compared to 64.67% in the year-ago quarter. In Q3FY23, the RoA and RoE were 2.21% and 14.94%, respectively.

The management has indicated that the demand across products remains healthy and is likely to sustain with small business loans (SBL), affordable housing (AFH), microfinance (MF), and commercial vehicles (CV) being the key growth drivers.

Meanwhile, the stock has been performing well on Dalal Street for quite some time. The company's shares, which were trading at 37.85 apiece in June last year, have risen by 55.61% to close at 58.90 the previous day.

The stock, which went public on November 02, 2020, is trading 78.5% higher than its IPO price of Rs. 33.0 apiece.

Equitas Small Finance Bank is engaged in the retail banking business with a focus on microfinance, commercial vehicle finance, home finance, loan against-property finance, corporate finance, and providing financing solutions for individuals and micro- and small enterprises (MSEs).

Article
Stock price chart of Equitas small finance bank.

After the bank's Q3 earnings, domestic brokerage firm Axis Securities has retained its "buy" rating on the stock and raised the target price to 70 per share from 60 earlier.

The brokerage believes EQSFB’s addressable market remains fairly large, offering the bank ample opportunities to ensure sustainable growth. It also expects EQSFB’s advances to register a healthy growth of 27% CAGR over FY23–25E.

“The bank will continue to invest in building the franchise, tech and towards strengthening the team to ensure robust growth.”

“Thus, strong growth, improving productivity, and improving the mix of long-tenor products will be key drivers to improve the bank’s operational efficiency, thereby reducing its C-A Ratio to sub-6% over the medium term from the current 6.4%,” said the brokerage.

ICICI Securities has also maintained its "buy" rating on the stock with an unchanged target price of 70 apiece.

The October-December quarter of FY23 was the first post-Covid quarter in which Equitas SFB's financial performance across parameters was robust, it highlighted.

12 analysts polled by MintGenie on an average have a 'strong buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

Article
Small finance banks offer slightly higher rates of interest
First Published: 15 Feb 2023, 10:47 AM IST